Sometimes there is confusion about what is EBITDA or earnings before interest taxes depreciation and amortization. Small business owners also want to know why is an EBITDA multiple important in a company valuation?
If you own a business and are getting divorced you may consider your current CPA to value your business. Here are some questions to ask!
One of the approaches business valuation companies will consider when providing a valuation of a company is the "Income Approach".
The income approach considers historical income, future revenues of a company, the earning potential and also capital requirements, or how much will be needed to invest in the building and equipment to support future revenue growth.
There are a couple of ways to look at the potential income of a company. One business valuation method which falls under the Income approach is the discounted net cash flow or DCF method. This method involves projecting the revenues, cost of goods sold, operating expenses, depreciation, working capital and taxes for five to ten years into the future.
The next step is to discount this future revenue stream to the present, which most of you will recognize as a present value calculation. The discount rate is derived from several methods such as the build up model or CAPM for example. The business valuation expert will also have to take into consideration whether this is a control or minority interest and make an adjustment with a control premium or a discount for lack of control. These are business valuation terms...which we discuss in more detail in other videos.
There can also be situations where there are liquidity or marketability issues for stock in closely held businesses. There are discounts for lack of marketability to cover these issues. As you can see there are many steps to consider when valuing a company from the income approach, but at least now you know enough to be dangerous.
If you would like more information on business valuations, methods to value a company or how to find reputable business valuation companies in Chicago, New York or St. Louis call us at 314-541-8163 or you can find additional videos on company valuation issues at http://www.YouTube.com/businessvaluationSTL
Business owners are always asking us questions about valuation issues in the context of divorce. Many attorneys and business owners want to know about secondary valuation services and what are maintenance calculations?
In the divorce litigation world, attorneys will talk about maintenance, which is the same as alimony or spousal financial support. It is the payment from one spouse to another for household expenses.
There are times when one spouse is the primary wage earner and the other has taken care of the house and kids. When a legal separation is requested or divorce papers are filed there may be a need for alimony to temporarily support the non-wage earning spouse until the lawyers work out a deal or the parties go to court. This amount is usually part of a bigger negotiation regarding the separation of assets, including who get the house, cars, investment accounts as well as child support.
Many times an attorney will hire a divorce valuation expert to calculate the after tax amounts that each spouse will have -- basically what is the money that is left over after taxes -- given different situations of alimony and child support.
Sometimes the working spouse wants to pay off the amount in one payment, so there is a present value calculation to determine the value of all the payments if they were paid in one lump-sum today.
If you would like to discuss your situation with a valuation expert, give us a call at 314-541-8163.
Many attorneys and business owners want to know about valuation issues regarding divorce in Missouri?
What happens when you own a company and you file divorce papers? Well the first step is to contact an attorney who you trust to handle your case.
Then you need to start gathering data, including prior tax returns for at least the past 5 years, financial statements, bank records, buy-sell agreements and operating agreements just to name a few. You will then start discussing the value of the company with your spouse, preferably through your attorney. If you find out that your view of the value is different than your spouse's view of the value -- then you may need a business valuation expert.
I typically see valuations for divorce have 3 different levels -- the first is calculation phase. This is where the expert reviews all info and determines the value of the business -- which is not a full valuation per se. Just calculations and some financial spreadsheets.
Then you or your divorce attorney may want to initiate discussions again with your spouse with the valuation expert's analysis.
Don't be concerned if your spouse also wants to hire an expert, that is normal. Sometime the attorneys and parties want the experts to discuss the valuations and see if they can come together on one number -- this doesn't happen often because divorces are very emotional.
Then the 2nd level is the report phase. if a settlement cannot be reached and the parties get closer to trial, the experts will then produce reports regarding the calculations. This is to outline the valuation methods used by the expert. These reports are ususally submitted to the court and to both attorneys at the same time -- and prior to the court date.
The final phase is expert testimony. After the reports are issued, the attorneys may want to questions the experts in deposition. This is treated like testimony in divorce court. This happens relatively close to the trial date. And then the experts will testify in trial.
One thing to keep in mind -- the experts are truly servants of the court and judge and therefore you should work to find an expert that tells you the truth rather than what you want to hear. If your divorce goes to trial you will want an expert who can support their numbers with data and not just opinions.