Basics of Business Valuation

So you want a small business Funding to purchase a new business. You need to know some outlines of how the professional personl hired by you would arrive at the value to right apply for funding for that small business you want to purchase. A valuation professional person may use the technics talked about below to develop a range of values. Different technics might result in different values.

Valuable Quality Based Valuation:

Book value—It is the difference between total valuable quality and total liabilities, better known as net worth. But it does not truly indicate market value of the business.

Net adjusted value—In this method firm’s assets and liabilities are graduated to current marketplace value, giving corrected book value. Again, it doesn’t check to actual market value.

Liquidation value—The estimate of the company possession worth, when sold at auction or a distressed sale.

These methods are seldom used because they don’t factor in future potentiality earnings and more often than not produce lower limit values.

Financial Gain Based Valuation:

Capitalisation of earnings— This method arrives at the assumptive value of the business by dividing previous year(s) normalized net earnings by assumed capitalisation rate. The perception of risk ascertains the cap rate used.

Discounted future earnings—In this method, present value is calculated brushing aside several years’ (perhaps five) future net earnings approximations. The sum of the present values may equal the assumed value of the business.

Again, the discount rate used reflects perceptual experience of risk associated with the purchase.

Generally risk, profitability, size and liquidity affect capitalization and discount rates.

Marketplace Comparison Method: In this method the subject small company you want funding for is measured against the marketing prices of similar companies on numerous parameters, such as industry, size and location.

 

Rules of Thumb Method: In this method recommended marketing price is arrived by calculating the firm’s yearly sales/earnings (usually normalized) multiplied by an assumed multiple.

These are some usually used business evaluation methods. Purpose or reason for determining value may result in use of one or more technics. The size of business is good index of the method to be used.

You must get the professional person to clearly explain the evaluation method used and its consideration. The concluding behind the pricing is critical for evaluating the personal risk involved and to successfully apply for New Business Loans.

Before You Buy Out a Business

In my last posts I discussed about the essentials and basics of Small Business Start up Loans for your capital or working capital financing requirements. This time I will discuss some of the absolute prerequisites before even thinking of going for a loan.

If you want financing so that you can buy out a small running business or a start up you need to know exactly the state of that business to negotiate a bargain if any, or to avoid paying more than the business is worth, or whether or not to go for it at all.

 

Following steps should be taken to understand the current state of a business:

 

Visit the Facility:

Check the facility and see it in action. Don’t be swayed by the super numbers on paper, visit the business. In fact, get an appointment with the seller to check out the business and then go again by yourself. This is the best way to find out the ground realities.

 

Decide on Professional Help:

Get some professional to do the valuation. If you don’t want to hire anyone for the evaluation, at least get an attorney to help you on many legal issues involved in such deals.

 

Request financial information.

The minimum you must insist upon:
– Financial statements for three years.
– Corporate Tax returns for three years.
– List of capital assets
– List of equipment.
– Inventory listing
– Accounts receivable aging.
– Accounts payable aging.

Check out the price of comparable businesses and the industry:

The professional you would hire might give you some information, but the best place is Internet. Check out the forums; articles; ask the industry experts.

Obviously none of these steps are required if your requirement is just working capital or if you are looking for financing small business loan for start ups.

In both the cases steps provided in my previous posts should be taken or for working capital financing requirements you can go for business cash advance.

The cash advance will be repaid from the credit card sales that the business does in a specific period, usually through automatic debit. Organizations like Merchantcashdirect provide such cash advance.

How My Small Flower Business Became Big With A Click……

Hi all. Here I want to share my story with all of you. I can’t resist it man, it is so damn amazing.

Well, in short it goes like this: I wanted some money to add variety to my florist shop, and I got it online after nearly going mad looking around for funding.

You must be wondering; what’s the big deal in getting a loan? People with small business get funding from banks and all….day in-day out. Well read on………

I am a New Yorker. This city eats, breathes, and sleeps money, dude. But God help you, if you are not a good enough deal as per the money guys here. I own a small florist shop here, and by nature florist business is not considered as good investment especially for working capital funding, as flowers perish quickly. You just might get funding for the capital expansion, as banks take the establishment as collateral.

That apart, those perfect suits make me really uncomfortable.

I wanted to add some exotic South East Asian variety to my offerings. They cost a bomb if you want them fresh enough. Obviously, I needed money, and banks and other lenders were out. Not that I didn’t try but they were big time skeptical and asked for guarantees, security, hell lot of documentation and what not. On the top of it–that outrageous interest rate!

I was at my wits’ end. I almost postponed the idea. Then my banker, God bless him, asked me to go for Business Cash Advance. Business cash advance is not a loan and you can repay it directly from the credit card sales, and the terms and conditions to qualify are quite simple. You can get funding even if you have piled up bad credit ratings.

So I looked around, and guess what……I got cash in nine days flat. I qualified as I was constantly making sales worth $5000 per month, much more than the minimum $4000. All I needed to do: to fill up an online form on www.MerchantCashDirect.com.

Within next few months sales almost doubled and now I am thinking of expanding into a chain. And I got myself a super expensive suit, just the kind bankers respect. So; Mr. Banker………now try to deny me loan.