Determining Value
Determining Value
A realistic business valuation requires more then merely looking at last year's financial statement; it requires a thorough analysis of several years of the business operation and an opinion about the future outlook of the industry, the economy, and how the subject company will compete.
Most people believe that a business should be sold for Fair Market Value. The term Fair Market Value is defined by the IRS at Rev. Ruling 59-60 as follows:
"the price at which the property would change hands between a willing buyer and willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts."
There are a number of different methods to determine a fair and equitable price for the sale of the business. The following lists a few methods to determine the price:
* Capitalized Earning Approach — This method refers to the return on the investment that is expected by an investor.
* Excess Earning Method — This method is similar to the capitalized earning method, except that it splits off return on assets from other earnings.
* Cash Flow Method — This method is usually used when attempting to determine how much of a loan the cash flow of the business will support. The adjusted cash flow is used as a benchmark to measure the firm's ability to service debt.
* Tangible Assets ( Balance Sheet) Method — This method values the business by the tangible assets.
* Value of Specific Intangible Assets Method — This method is based upon the buyer's buying a wanted intangible asset versus creating it. This method also takes into consideration valuing the goodwill of the business.
Determining Value - To learn more about this author, visit Start Your Business's Website.
Like this article? Share it with your friends
Determining Value
A realistic business valuation requires more then merely looking at last year's financial statement; it requires a thorough analysis of several years of the business operation and an opinion about the future outlook of the industry, the economy, and how the subject company will compete.
Most people believe that a business should be sold for Fair Market Value. The term Fair Market Value is defined by the IRS at Rev. Ruling 59-60 as follows:
"the price at which the property would change hands between a willing buyer and willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts."
There are a number of different methods to determine a fair and equitable price for the sale of the business. The following lists a few methods to determine the price:
* Capitalized Earning Approach — This method refers to the return on the investment that is expected by an investor.
* Excess Earning Method — This method is similar to the capitalized earning method, except that it splits off return on assets from other earnings.
* Cash Flow Method — This method is usually used when attempting to determine how much of a loan the cash flow of the business will support. The adjusted cash flow is used as a benchmark to measure the firm's ability to service debt.
* Tangible Assets ( Balance Sheet) Method — This method values the business by the tangible assets.
* Value of Specific Intangible Assets Method — This method is based upon the buyer's buying a wanted intangible asset versus creating it. This method also takes into consideration valuing the goodwill of the business.
Determining Value - To learn more about this author, visit Start Your Business's Website.
Like this article? Share it with your friends
 | |
 |
No article feedback found. |
| |
Leave Your Feedback |
 | |
| |||
|
To learn more about the Evan Elite Author Program please contact us. |
 | |
|  |
Subscribe to Start Your's articles
 |
|
Mastermind Group Resources - Strategies to get the most from your Mastermind Group. The purpose of this blog is to share resources, tips, strategies, and ideas on how to build a Mastermind Group and make it more effective.
|
|
|
 |
 | |
|
| |
 | ||||||
|
 | ||
 |
||
 |
||
 |
||
|
| ||
 |
| Have you written articles that would be of value to entrepreneurs? Become an expert on our site by publishing them! Expose yourself to a wide audience, drive more traffic to your website and get more sales! Click Here for details. |
|
|
 |
| Modeling the Masters: Learn the true secrets behind Walt Disney's business success factors & grow your company! Video produced by Phanta Media |
|
|
 |
"Learn straight from Evan how you can Make a Full Time Income (And More) from a Website"
Click Here To Learn More |
|
|
|
|
Get advice & tips from famous business owners, new articles by entrepreneur experts, my latest website updates, & special sneak peaks at what's to come!
|
|
|
 Ideal Client How To Work Sample Press Release Leadership Audit For Business Traffic to Site |
|
 | ||
 |
Email The Reporters
Press Release Builder | |
 |
Top 50 Social Media Blogs
Top 50 Social Media Blogs | |
| ||
 | ||||
| ||||
|
| ||||
| ||||
|
|
|
|
|
||||||||||||
|
Email us your ideas on how to make our website more valuable! Thank you Sharon from Toronto Salsa Lessons / Classes for your suggestions to make the newsletter look like the website and profile younger entrepreneurs like Jennifer Lopez and Sean Combs!
|
|
|
