Sustainable Credibility Through Proven Competence

  • 1. Correct and Complete Use of All Applicable Generally Accepted Business Valuation Methodologies
    • Generally Accepted Business Valuation Theory and Methodologies which consider all three Approaches
      • Asset Approach
      • Income Approach
      • Market Approach
    • Full adherence to business valuation guidelines and pronouncements of the IRS and DOL
      • IRS Revenue Ruling 59-60 and following
      • DOL Regulation 29 CFR Part 2510 (for ESOP valuations)
  • 2. Research Concluding in a Specific Assessment of Risk for the Company
    • Economic Research (International, National, Regional, State, County, Local)
    • Industry Research (Including all related industries which drive company value)
    • Company Research (Specific analysis of strengths, weaknesses, opportunities and threats)
    • Care to use only eligible research material which was reasonably “known or knowable” to a prudent hypothetical investor at the valuation date so as not to disqualify the valuation conclusion
  • 3. Thorough Analysis and Adjustment of Financial Information
    • Historic Actual Income Statements and balance sheets
      • Five year trend analysis
      • Five year common size by percentages
    • Industry Comparisons
      • Common size financial statements
      • Ratio analysis and comparison
    • GAAP adjustments to convert cash basis (OCBOA) financial statements to proper GAAP basis
    • Valuation adjustments (“Normalization”) for income statements and balance sheets
      • Income and Expenses – Non-recurring, excessive, non-operating, discretionary, related-party
      • Assets and liabilities – Non-operating, above or below operating levels, related-party, etc.
  • 4. Company Site Visit by the Professional Valuation Analyst
    • Thoroughly understand the subject’s unique attributes
      • Clarify questions arising from the company’s financial analysis
      • Tour facilities to assess company’s capacity, constraints, organization, set up, etc.
      • Meet with president and key executives to personally understand company attributes
    • In compliance with recommended procedures of professional valuation standards
  • 5. Proper Calculations for The Preferred Economic Income Stream
    • Appropriate determination of the income stream, usually net free cash flow
      • Cash flow to equity
      • Cash flow to invested capital (so called “debt-free” cash flow)
    • Proper conversion of net income to net free cash flow
      • Adjustments for changes in working capital (“Bardahl” formula where appropriate), capital acquisitions and Long term debt (if cash flow to equity)
      • Depreciation and Amortization
      • Unearned revenue
      • Debt service (if cash flow to equity)
    • Care used to determine proper cash flow growth rate (not sales growth rate) based on existing capital structure on a long-term sustainable basis
  • 6. Analysis of Discount and Capitalization Rates for Multiple Indications of Value
    • Build-up method for capitalization rate for equity rates using Ibbotson data from SBBI Yearbook, Valuation Edition
    • Weighted Average Cost of Capital (WACC) for invested capital rates
    • Clearly researched long-term sustainable growth rate used, tied to company-specific research results
    • Careful connectivity to research results to support determination of company specific risk premium
    • Proper matching of discount and capitalization rates to the appropriate measure of cash flow
  • 7. Correct Use of Business Valuation Discounts and Premiums
    • Correctly match the discounts and premiums to the particular level of value used for each indication of value considered
    • Supportable connectivity of the discount or premium determined by the specific attributes of the company, not just an average of general empirical research
  • 8. Credible Conclusion of Value Through a Synthesis of Multiple Indications
    • Multiple “indications” of value considered derived by multiple valuation methods
    • Multiple indications are not arithmetically averaged or weighted by some arbitrary calculation
    • Indications of value are weighted by the appraiser’s judgment of the confidence level attached to each value indication
  • 9. Thorough Documented Written Valuation Report
    • Comprehensive report not filled with repetitious material or excessive meaningless boilerplate
    • Specific references are plentifully cited as footnotes
    • Multiple exhibits, tables and charts are embedded and referenced in text material, not in appendices
    • No unrelated information to fill pages – each level of text, exhibit, chart or table is clearly tied to the ultimate value conclusion, risk assessment or support of an assumption, nothing is inserted and left for reader to determine relevance of the material
    • Reports are in conformity to written reporting standards of professional valuation standards
  • 10. Professional Business Valuation Standards Confirm Generally Accepted Valuation Procedures and Proper Report Preparation
    • Valuation procedures and reports are provided in conformity with professional standards of national accrediting organizations for assurance that the valuation theory, methodologies and calculations are widely accepted as credible and sustainable
      • USPAP, if requested
      • NACVA
      • IBA
    • Provides the client with assurances that the appraiser has the technical skills, knowledge and judgment to perform credible and sustainable valuation reports
    • Assures the client that the appraiser is continuing to remain educated on current valuation procedures, pronouncements, theories, methodologies and techniques through mandatory continuing education requirements and recertification through national accrediting organization