Valuing Businesses Presented by Dale L Clack August

Valuing Businesses Presented by Dale L Clack August 3, 2018

About Dale Clack • VP, Loan Officer - Midwest Regional Bank • SBDC Financial Consultant for 7 years • Colorado Real Estate Broker since 1994 • Business Broker for 17 years • IBBA Instructor, Business Valuation for 14 years, – Taught over 1, 000 business brokers nationwide • • CBI – Certified Business Intermediary, IBBA CPA – California and Michigan for 20+ years MBA – Finance, Golden Gate University BA – Accounting, Michigan State University

Steps in the Process • Step 1 – What is for Sale? – This determines what methods of valuation • Step 2 – Recast Financial Information to find real economics of the Biz • Step 3 – Estimate a Selling Price

Step 1 – What is for Sale • 100% of the business • Assets vs. Stock – Answer impacts approach, methods, value • Value business separately from the real estate • What is "goodwill" and how is it valued?

Step 2 - Recast Financial Information • Collect 3 years of data to review trends • Determine EBITDA – for value over $1 Mil – Earnings Before Interest, Taxes (income), Depreciation & Amortization • Determine DE - for small biz valued up to $1 M – EBITDA + fair compensation for one owner • Danger in having too many "add-backs“ • Include "add ins": underinsured, fair market rent, kids work for free

Step 3 – Valuation Approaches • Just like in Real Estate … – Asset Approach • Add up the value of assets – Income Approach – • Capitalize an income stream – Market Approach – Sale of “Comps” • Data Bases: Biz. Buy. Sell, Biz. Comps, Pratt’s

Step 3 – Methods in the Approaches • Percentage of Sales – Use “comps” from a data base • Multiple of DE or EBITDA – Use “comps” from a data base – DE: 1 x – 3 x – EBITDA: 3 x – 5 x • Capitalized Income (EBIT) to value invested capital – Build up a cap rate that is appropriate for the risk – Could vary between 20% to 50% • Reconcile the differences between methods – Which are better & why

Business Valuation Summary • Business valuation is a complex task – Requires expertise to do it right • There are experts to assist you – Business Brokers, CPAs, Attorneys, Business Appraisers • Advise your customer/client: – Hire an attorney – Hire a CPA with business value expertise and tax knowledge for this transaction

Resource “CABI” - Colorado Association of Business Intermediaries – Business Brokers with the CBI designation – Attorneys & Lenders who facilitate deals – CPAs with business valuation knowledge – URL: www. coloradobusinesses. com • FAQ’s • Articles library

Contact Information Dale Clack Work: 720 -274 -9326 Mobile: 303 -204 -3106