SBDC Valuation Analysis Program

This program uses various techniques to help small businesses look at various approaches to valuation for a potential purchase or sale of a small business. Each technique has a separate worksheet, and a final worksheet prepares a summary using all of the techniques. The Capitalized Adjusted Earnings approach and Discounted Future Earnings approach are standard valuation techniques employed in SBA lending, and utilize the methodology described in the SBA's Standard Operating Procedures (SOP) for lenders. The Business Valuation Model uses a fair market valuation of assets method, and is provided courtesy of John Nelson III, owner of the Capital Connection. The SBDC assists clients in putting their data into this format, and makes no guarantee or claim to the accuracy of the numbers. This information is typically "internal" in use by owners of a small business, and is not meant to be shared with others or used as the sole means of determining the value of a small business. The input process can begin by completing each sheet, left to right, by inputting data into BLUE fields only. The black fields are not protected, and the user is warned to input over them at the peril of destroying formulas and making the program unusable as originally intended.

Company Name Date Capitalized Adjusted Earnings (CAE)

Year Earnings Weight Adjusted Value Adjusted Value/Total Weight Indicated Value 1 $50,000.00 1 $50,000.00 2 $35,000.00 2 $70,000.00 3 $65,000.00 3 $195,000.00 4 $60,000.00 4 $240,000.00 5 $80,000.00 5 $400,000.00 Total $290,000.00 15 $955,000.00 $63,666.67 $318,333.33

Take five years of historic earnings. Year 5 is the most recent earnings year.

"All financial and business information contained herein was provided by the management of the business. The SBDC assisted in compiling the data and presenting in the format shown, and makes no claims regarding the accuracy of the presentation."

Company Name Date

Discounted Future Earnings (DFE) Year 1 2 3 4 5 6 7 8 9 10 Average earnings Growth rate Projected Growth Factor Net Present Value $58,000.00 105.00% $60,900.00 0.8333 $50,747.97 $60,900.00 105.00% $63,945.00 0.6944 $44,403.41 $63,945.00 105.00% $67,142.25 0.5787 $38,855.22 $67,142.25 105.00% $70,499.36 0.4822 $33,994.79 $70,499.36 105.00% $74,024.33 0.4018 $29,742.98 $74,024.33 105.00% $77,725.55 0.3349 $26,030.29 $77,725.55 105.00% $81,611.82 0.279 $22,769.70 $81,611.82 105.00% $85,692.42 0.2325 $19,923.49 $85,692.42 105.00% $89,977.04 0.1938 $17,437.55 $89,977.04 105.00% $94,475.89 0.1616 $15,267.30 Indicated Value $299,172.69

Average earnings year one, calculate the average earnings for the previous 5 years or justify number based on current operations A moderate growth rate of 5% is used for the projection Factors based on 20% risk typical for small business. Do not change the factor column.

"All financial and business information contained herein was provided by the management of the business. The SBDC assisted in compiling the data and presenting in the format shown, and makes no claims regarding the accuracy of the presentation."

Company Name Date

PROVIDED BY JOHN W. NELSON III, CAPITAL CONNECTION

BUSINESS VALUATION ANALYSIS

Based on the most recent tax return. 1 Sales 2 3 4 5 6 7 Sample $ 700,000 This Case $0 $0 $0 $0 $0 $ $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 0% $0 0% $0 $0 $0 $0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

8 9

10

11

Operating Exp. (COGS) $ 414,400 Admin. Exp. $ 148,400 Owners Salary $ 49,000 Depreciation $ 21,000 Stabilized Earnings $ 109,200.00 Asset Value & Working Cap. A. Land $ 20,000 B. Buildings $ 120,000 Inventory $ 1. Raw $ 2. In Process $ 3. Finished $ 4. Resale $ C. Total Inventory $ 60,000 D. Equipment $ 60,000 F. Other Tangible Assets $ G. Total Tangible Assets $ 260,000 H. Working Capital Needed $ 40,000 I. Tangible Assets & W/C $ 300,000 Underlying Interest Rate $ 0.12 Cost Of Money A. Tangible Assets & W/C $ 300,000 B. Underlying Interest Rate $ 0.12 C. Total 9A + 9B $ 36,000 Excess Earnings A. Stabilized Earnings $ 109,200 B. Cost of Money $ 36,000 C. Excess Earnings $ 73,200 Calculate Multiple Rating (1 through 6 higher is better) A. Risk $ 4.0 B. Competitive $ 3.0 C. Industry $ 3.5 D. Company $ 5.0 E. Growth $ 4.0 F. Desirability $ 4.0 G. Owner's Reason for selling $ 6.0 H. Length of time current owner has owned $ 4.0 I. Length of time the firm has been in business $ 6.0 J. Profitability $ 5.0 K. Location $ 5.0 L. Entry barriers $ 5.0 M. Customer Base $ 5.0 N. Technology $ 3.0

611,800

"All financial and business information contained herein was provided by the management of the business. The SBDC assisted in compiling the data and presenting in the format shown, and makes no claims regarding the accuracy of the presentation."

G. Total H. Total divided by 14 12 Value of Excess Earnings A. Excess Earnings B. Multiple Rating C. Value of Excess Earnings 13 Total Business Value: A. Asset Value B. Multiple Rating C. TOTAL BUSINESS VALUE Value of turn key operation D. Final Business Value

$ $ $ $ $ $ $ $ $ $

62.5 4.5 73,200 4.5 326,786 260,000 326,786 586,786 25,000 611,786

0 0 $0 0 $0 $0 $0 $0 $0 $0

"All financial and business information contained herein was provided by the management of the business. The SBDC assisted in compiling the data and presenting in the format shown, and makes no claims regarding the accuracy of the presentation."

ATION ANALYSIS
Notes Last Annual COGS include depreciation exp Yearly Last years

at FMV at FMV at cost at cost at cost at cost book or FMV Furniture and Fixtures lowest cash should go highest rate allowed

rounded

minus

high risk, low # more competitors, lower # what's the future? more desirable, higher # higher growth, higher # to own the company better the reason, higher # over 10years a 6, down from there over 10 years a 6, down from there industry std a 3 or 4, adjust from there more desirable, higher # harder to start, higher the number more loyal provable base, higher # higher tech, higher # "All financial and business information contained herein was provided by the management of the business. The SBDC assisted in compiling the data and presenting in the format shown, and makes no claims regarding the accuracy of the presentation."

Average of the above numbers

the mulitplier

An estimate, usually $15 -$25K

"All financial and business information contained herein was provided by the management of the business. The SBDC assisted in compiling the data and presenting in the format shown, and makes no claims regarding the accuracy of the presentation."

Company Name Date Small Business Valuation Analysis Summary

Valuation Technique 1) Capitalized Adjusted Earnings Value 2) Discounted Future Earnings Value 3) Market Valuation Value Average of Above Techniques Comments $ $ 318,333 299,173 $0 205,835

"All financial and business information contained herein was provided by the management of the business. The SBDC assisted in compiling the data and presenting in the format shown, and makes no claims regarding the accuracy of the presentation."