Focus in on valuing micro and small businesses using the income methods of business valuation. Learn to distinguish differing risk factors between large companies and micro and very small companies. Join Gregory Caruso for a deep dive into problematic areas of actual small-business valuation cases to review theory and tie it into the actual application of methods using best practices and professional judgment. Audience questions and succinct opinions welcomed in this hands-on event.
Program Agenda
Intro
Why micro and small businesses are inherently more risky than larger businesses
Issues with very small business and the Income Methods
Who is an investor?
Gordon Growth, Dividend Discount Model (DDM) issues
Cash Flow Considerations
EBITDA and Owner Market Compensation Issues
Tax Affecting
Issues
Suggested Solution
When using Capitalization of Earnings (and sometimes terminal value)
Adjustments for Working Capital, Debt, Cap X
Review of projections and forecasts for use in Discounted Cash Flow Method
Balance Sheet Accounts?
Calculating a Discount and Capitalization Rate
Buildup Method or BUM
Industry Premium
Size Premium
Company Specific Premium
Growth Rate (Capitalization Rate and Terminal Value)
Terminal Value
Gordon Growth
Exit Multiple Approach
Completing the Estimate of Value
Next Period Cash Flow
Excess Assets / Not enough assets
Other Issues
Mid-Year Capitalization Rate
Weighted Average Cost of Capital
Rule of Thumb – Finance Method
Rule of Thumb – Discounted Cash Flow Estimates on unsupported cash flows
Learning Objectives
Distinguish differing risk factors between large companies and micro and very small companies
Collection of qualitative data, which I refer to as “soft data,” such as internal soft data (processes, management, etc.) and external soft data (economy, industry, etc.) and then the application of findings to valuation cash flows and risk adjustments
Develop a discount and capitalization rate using the buildup method (BUM) for the income method as it pertains to micro and small businesses. Particular emphasis on industry risk and specific company risk and growth rate
Review a projection or forecast to determine suitability as a cash flow for the discounted cash flow method
Describe common missed cash-flow issues in the capitalization of earnings and/or terminal value year
Explain integrating the balance sheet into micro- and small-business valuations. Considerations include estimating working capital and excess current assets, included and excluded assets and the effect on value found, and going-concern issues in capital-intensive industries
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