A Typical Restricted Use Appraisal Report For The Sale Of A Business
The purpose of the report is to indicate either the Most Probable Selling Price or the Fair Market Value of an ongoing business operation. It is used with buyers and/or lenders in the sale or financing of the business.
The Restricted Use Appraisal is a limited scope business valuation intended for the standard small business with sales up to $20,000,000. The report is approximately 45 pages and provides a summary review of all aspects that are considered in determining the final valuation conclusion. The bulk of the report is financial analysis and the valuation conclusion is supported in detail. In addition to the discretionary earnings of the company, the Balance Sheet is also a component of the analysis.
Nine methods are considered in three main valuation approaches, including asset/cost, income and market comparable based valuation approaches.
Beware: Not all business appraisals are alike. Many appraisal services use only one method, typically discounted cash flow, in valuing the business. This can leave significant additional value unrecognized in the report!
Depending on the facts and circumstances of a particular analysis, application of one or more of these methods may be more appropriate than another. The approaches used are assigned confidence levels depending on the appraiser's judgment, the type of assets in question, the historical and prospective cash flow generating capacity of the business, as well as the quality and quantity of available financial, operational and industry data. The report contains the following (partial list of contents):
- Indicated value of the business based on multiple valuation methodologies
- Allocation of indicated value between tangible and intangible assets
- Recommended financial structure for the deal to optimize price
- Justification of purchase, to test the reasonableness of the indicated value
- Financing analysis if appropriate
- Historical financial statements
- Detailed description of each valuation approach considered and used
Information Required: The following documents are usually required for completing the analysis:
- Historical financial statements and/or tax returns for the last three fiscal years.
- Interim financials for the current year to date and interim period annualized
- Business Plan including projections for sales, earnings before tax, and cash flow
- Complete list of equipment, furniture and fixtures
- Current industry forecasts or analysis
In addition to the items listed above, the business owner will need to be available for an initial interview to collect all pertinent information about the business.
Through our sister company,
Merrimack Business Appraisers, we offer comprehensive formal appraisals as well as restricted use appraisals for all of your business valuation needs including: transfer of ownership, dispute resolution (shareholder and divorce), and tax matters (gift, estate, impairment and capital gains).
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Call Lou Pereira today at 603.890.6628 to discuss how a professional business valuation can make the difference in selling your business.
