Ed Davis, CPA, CVA, Business Broker and Business Valuation Expert in the Mid-Atlantic
Ed Davis, CPA, CVA business broker and business valuation expert, will be participating in a panel discussion at the Atlantic Region Energy Expo in May 12-14 at the Taj Mahal in Atlantic City, New Jersey. The Atlantic Region Energy Expo is an annual trade show for companies that deliver fuel oil, propane and alternative fuels (bio) to a variety of residential and commercial customers. The topic, that all owners of privately owned companies think about, “Navigating A Successful Transaction”, will be hosted by Steve Abbate, Managing Member, Cetane Associates, LLC. Click here for more information.
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When a bank is obtaining a SBA loan to finance the purchase of a business a business valuation is required. If there is less than $250,000 of goodwill the bank often can perform the valuation internally. If more than $250,000 of goodwill value then an independent valuator needs to be retained by the bank. This business valuation expert needs to have proper business valuation credentials like a CVA (Certified Valuation Analyst). SBA business loans for the sale of businesses tend to be cash flow loans. Namely the cash flow from the business must support the purchase price. The bank underwriter checks for that. The valuation expert is asked to determine that the purchase price of the business is not more than the “fair market value” of the business using accepted valuation principals.
Want to know more? Please click here for the downloadable e-book. “7 Things You Must Know Before You Order a Business Valuation”
For more information on SBA Business Valuations by Harvest Click Here
The valuator is charged with reviewing the overall business situation, starting with the overall economy, industry, and then to work down to the financials in order to ensure that the price and value align. Typically the business valuator will need the following documents: 3 years tax returns, year to date financial information, the lease or real estate purchase agreement, major client information, accounts receivable and accounts payable information, ownership information, and a copy of the sales agreement. Specific situations will require more information. It is also helpful to provide documentation on all “add backs” necessary to normalize owners income. Often the seller will be interviewed or a questions sheet will be provided to him asking important questions. It is important to provide documentation as soon as possible in order to allow the valuation to proceed. Generally valuations take about two weeks from the time all documentation is received. Clearly they can be done much quicker when necessary.
If your documentation is in good order and your tax return or reviewed cash flows support your price getting a business valuation is a fairly simple part of the SBA loan process. If you have any questions you may always give us a call.
Harvest Business Advisors
National Business Valuations, Business Brokers
Maryland, New Jersey
What every business broker, business intermediary, and business appraiser knows is that in order to get the highest price when you want to sell your business you must identify and attract the best, most motivated and qualified buyer for your business. This will vary with your size, profitability, industry and so on. Below are the buyer types for smaller businesses with a value of up to $3 to $5 Million.
Remember to make your business as desirable as possible for your ‘best’ buyer. This may involve physical changes to the business over time. It may involve providing financing or training that is a little out of the norm. It certainly will involve looking at the prospective buyers of your business as you would your regular customers and make your product (the total business) as great as possible.
Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.
Below, we are outlining how we classify buyer groups. As with any grouping of people some people will fit several groups and some will not fit any.
Tradesmen With a Windfall. All joking aside, lottery winnings and more often inheritances have been the down payment on more than one business. Sometimes equity in a home serves the same purpose. It is very difficult for working people to save enough money to buy a business. Their preference is usually for smaller businesses that involve a trade such as small plumbing shops, auto shops, machine shops, etc. Often the owner is the primary manager and there are a few other mechanics but little support staff. Buyers tend to know the trade and be comfortable that they can do the work if all else fails. If the prospect has a little more money and a business background they may buy a little larger business. Typical transactions range from $50,000 to $500,000
New Americans. This Buyer group tends to be buying jobs. They are often overqualified but have language barriers, and they typically buy businesses such as delis, convenience stores, and gas-and-go stations.
Corporate Sales & Middle Managers. They are similar to the tradesmen but they tend to buy a little larger business. They buy profitable businesses and are interested in proven results: they do not want to re-invent the wheel. They tend to buy businesses with two or three office support staff in addition to the production and sales people who know how to ‘run the shop’ when the owner is out. They will often pay the best price because they are paying for the complete system including customer lists and goodwill. Typical transactions range from $350,000 to $1,500,000.
Key Employees. Key employees are often the best Buyers because they really know the business and they often have demonstrated experience running it. They have a vested interest and have already bought into solving the problems and living with the risk inherent in that business. However, many times key employees do not have the cash and the access to capital to buy the business. They also may not have the energy or interest in being an owner. Many owners have assumed their 60 year old managers would want to buy them out only to learn that the managers intend to retire the day the owner does.
Remember, in all cases, identify your best buyer. Improve and market your business to attract that buyer. If you are unsure about your best buyer do not hesitate to call or email. and have a confidential conversation.
Gregory R. Caruso, JD, CPA, CVA
Harvest Business Advisors