WHAT MUST BE ANALYZED AND DETERMINED:
1. Future discretionary
cash flows considering:
- net operating income
- depreciation and amortization
- long and short-term interest expense
- owners benefits including salaries and bonuses
- extraordinary expenses
- capital expenditure requirements
- working capital requirements
2. Determining valuation
multiple considering:
- business risk
- growth opportunities
- debt capacity
- competition
- buyer market
- employee skill level requirements
- customer base
- owner involvement in the operations of the business
- gross revenue levels
- economic dependence
- age of business
- extent of technology and research
- availability of vendor financing
- profitability trend
- proprietary products that are protected
3. Asset or Share sale
considering:
- income tax impact
- financial liabilities
- net working capital
- redundant assets
4. Buyer synergies
considering:
- quantifying additional value to seller
- negotiating additional value
5. Terms of the deal
considering:
- vendor financing
- guarantees and warranties
- non-competition agreements
- management contracts
DETERMINING BUSINESS VALUE IS A SUBJECTIVE CONCEPT THAT UTILIZES BOTH REAL DATA AND
PROFESSIONAL JUDGEMENT
