Business Valuation

Whatever your reason, getting a Business Valuation does not have to be an overpowering event; with just a few short interview questions and some standard financial documents, a customized Business Valuation from SouthPointe Solutions, LLC adapts to your specific market needs.

We are readily available to discuss your current needs for all your financial resolutions whether you are looking to buy or sell, expand or contract, litigate or settle, invest or divest, we are here to help provide you with the documents and pro forma to assist in reliable decision making tools.

Being a successful sole proprietor is an achievement in itself.  However, when negotiating with buyers, sellers, banks, mortgage companies, brokers and investors, an independent third party is a strong motivator to highlight your personal achievement in an analytical business world. Although your business means more to you than two opposing columns of figures consisting of credits and debits, others see your business as black and white as it gets; as a vehicle for future benefits that will accrue with the value of future economic benefit discounted back to a present value with an appropriately applied discount rate.

We at SouthPointe Solutions LLC provide you with an outside, unbiased look at your business and surrounding market data for just such occasions. We don’t just look forward; we can also highlight your business history and previous credibility in our business analysis.

Under Uniform Standards of Professional Appraisal Practices (USPAP) there are 5 distinguishable methodologies, or approaches, to Business Valuations. The most common are the first two; the Discounted Economic Income Method, and the Capitalized Economic Income Method.  Next are the Comparative Transaction method, then the Asset Accumulation Method and lastly, the Capitalized Excess Earning Method.

Each of these methods of appraisal is used in unique, qualifying situations dependant on the needs analysis your company provides to us in the interview stage. We will provide you with a definition of each of the approaches to value and, with you, conclude as to which best fits your needs and goals.

 

Discounted Economic Income Method – Based on the economic principle of anticipation, sometimes referred to as the principle of expectation, the discounted economic income approach values the subject business or business interest, as the present value of the expected income flow to be generated by said investment. The investor will “anticipate” or “expect” income to be earned from the investment. The resultant anticipation and/or expectation is then converted to a net present worth or and “indicated value of the subject business interest”.  This method can be concluded by either the subject or by market-derived discount rate.

 

Capitalized Economic Income Method – This method is highly utilized in business valuation of small to mid-sized business models, closely held companies and, yet not as common, large entities. The opinion here is that most of the foregoing business models in this classification, over time, retain a stable growth rate based on the past competencies, characteristics and management of the historical data. The results of these types of business models focus more on day-today operations and gradual increases more so than expansion.

 

Asset Accumulation Method-This method assumes dissolution, liquidation and a general separation of tangible and intangible assets from the ongoing concern for the benefit of valuation. The three types of assets valued are as follows:

  • Asset/Property Investment (Income Producing Real Estate)
  • Security Investments (minority interests in shares of stock or bonds)
  • Intangible Asset Investment (patents, trademarks, or copyrights)

Valuation methods use can be net asset value method, adjusted net book value and/or capitalization of excess income method.

 

Comparative Transaction Method- The methodology here, or the thought process is to value a company’s level of economic income on a transactional basis within the same industry or as similar and comparable industry as possible to achieve a valuation. Sometimes this is referred to as the Market methodology as this analysis is used to support the other income approach methodology.  An additional benefit of the comparative transaction method approach allows the end-user to observe how the marketplace reacts to companies in similar industries within the context of the subject valuation or how the varying level and types of economic trends affect economic incomes. This also assists in projecting types of buyers or anticipating demand and even possible expectation of rates of return for given industry.

 

Capitalized Excess Earning Method – This method is more or less a hybrid of the Asset Accumulation Method (adjusted book value) and one of the income methods (earning capacity).