Business ownership transitions are difficult. Many business owners will procrastinate and not take timely action. Here are some of the avoidable consequences. 1) Failure to have a solid buy-sell agreement for multi-owner businesses. Businesses without such an agreement are playing Russian roulette. If an owner dies, her estate might not have any leverage in obtaining a satisfactory price for the… Read More
On November 3, 2015, the S&P 500 Index (a better measure of the overall market than the Dow Jones Index) stood at 2,109.79. As I write (on January 14), the S&P 500 stands at about 1,880, a decline of almost 11%. What, if anything, does this mean for the valuation of privately held companies and the 2016 M&A environment? In… Read More
Say your business generates $400,000 per year in profits, is worth $2 million and your tax basis in your S corporation stock is $400,000. You have a key employee (KE) who wants to buy the business. You have managed your finances prudently over the years and you don’t need top dollar from the sale. KE has helped you build the… Read More
Managing a professional services firm Chuck Hufnagel is a professional engineer and in 1988 started his own firm. He specialized in land development and his clients included developers and a number of municipalities in the Philadelphia suburbs for whom he acted as a consulting engineer. Chuck had an excellent reputation and developers, architects and municipal officials loved to work with… Read More
Pricing your service business for sale Valuation of closely-held businesses requires estimating future cash flows and then discounting those cash flows at an appropriate rate. Historical financial information is only important in so far as it suggests what to expect in the future. Historical information is never by itself sufficient—business conditions are constantly changing. Estimating future cash flows requires an… Read More
If you are the owner of a successful business, you are regularly bombarded with solicitations from brokers who claim to have a buyer just begging to pay you top dollar for your business. You are probably sensible enough to realize that these solicitors are not the best persons to sell your business. But who is? What we will call “Transaction… Read More
The case of law firms: An adventure Valuation of closely-held businesses is deceptively straight forward. It requires the discounting of future cash flows at an appropriate discount rate. Estimating future cash flows and selecting an appropriate discount rate are not easy, but they can usually be done. This process results in an estimate of what the valuation profession calls “fair… Read More
Note: The following is based on actual case histories. The names have been changed to protect the guilty. Antonio Tubal graduated from college as an electrical engineer and went to work for a large manufacturer of commercial refrigeration systems. Tubal spent several years working in the company’s division that designed and manufactured air conditioning systems for large industrial/commercial facilities. Tubal… Read More
Law Firms – Overview Valuation of closely-held businesses is deceptively straightforward. It requires the discounting of future cash flows at an appropriate discount rate. Estimating future cash flows and selecting an appropriate discount rate are not easy, but they can usually be done. This process results in an estimate of what the valuation profession calls “fair market value” – i.e.… Read More
Let’s say you have an opportunity to purchase a closely-held business. Perhaps you are a key employee in a business and the owner is looking to get out. Or perhaps you want to leave the corporate world and purchase a franchise. If, for example, the purchase price is $2 million and you can get SBA (Small Business Administration) guaranteed financing… Read More
