Single Origin Shots

What’s Your Business Worth?

Evaluation Exercise

1. The income tax returns from the business for the two years it has been operational.

2. The profit-and-loss statements and year-end balance sheets for the business since it has been operational.

3. A copy of all loans, notes and any other payables for which the company is liable. An evaluation of the value must include a detailed review of these documents to confirm any extraordinary conditions related to the purchase conditions, including interest rates, terms of the loans and notes, and the existence of any balloon payments.

4. A detailed list of all fixed, tangible assets to be included in the sale. You must include the original purchase price, date of purchase, depreciation formulas and adjusted values of those assets at present.

5. Any other documentation that may further confirm the present dollar value of the business.

If a commercial lender is involved, there may be other documents requested. I also strongly urge you to begin preparing a business plan. A commercial loan of this nature will require that document. Likewise, it must be substantive.

How many years of net profit the sellers want in return for selling the business. In simple terms, the sellers want to sell off all liabilities, be compensated for the present value of all fixed assets, and then seek a margin above that total dollar value that reflects net profit for a certain period. Consider the simplified example below:

Present Value of Assets $60,000
Projected Net Profit for 2 Years $20,000
Less: Present Liabilities $12,000
Selling Price

$68,000

Less: Buyer Investment $24,000
Adjusted Selling Price

$44,000

In this example, the present adjusted value of all fixed, tangible assets is $60,000, and the seller wants to be compensated for $20,000 he estimates the business will produce in the next two years. Assets plus projected profits equals $80,000. Subtract the liabilities the buyer will assume, and the adjusted selling price is $68,000. However, let us also consider the example in which the buyer previously invested $24,000. That should reduce the selling price to $44,000.

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