More... about Initial Valuation
Going Concern Valuation: ValuPro is designed to value a 'going business concern;' meaning, a profitable, sustainable, viable, on-going business.
ValuPro is not so well suited to the valuation of a ‘start-up’ or any business without earnings, unless earnings can be credibly forecast; often a tall order, but there are times, such as a new franchise store perhaps. Otherwise, no earnings are apt to limit the value of the business to the value of assets, with little or no goodwill value. There will be business potentials; maybe some startups, inventions, good ideas, buy-a-job, however, where there will be intangible value, but often non-calculable; value often, that is evident only to the eye of the beholder…. but, those are not the business valuations ValuPro was designed to calculate.
Balance Sheet Value is simply the net of assets minus liabilities included in the sale; assets at book value; usually, in a share sale, or at fair market value in an asset sale, and liabilities at actual. Balance Sheet Value represents retained earnings from the company’s past.
Goodwill Value places value on the company’s future earnings, typically calculated on a multiple of normalized ebitda; earnings before interest, taxes, depreciation, amortization, normalized to before extraordinary, or non-business, non-essential and non-recurring income, costs and expenses.
Cash Flow will set the limits. Ultimately, the business will be expected to pay for itself over time with interest; return of and on investment. Cash flow imposes a regulator on the valuation, based on what the cash flow can support, service and repay over a reasonable return period.
ValuPro is a software program designed to calculate a fair market business valuation on an assessment of the company's ability to continue at a sustainable level and to generate cash flow to pay for itself over a reasonable period. ValuPro is also designed to generate a series of business profiles, with which to present the business-for-sale to potential buyers, in coherent manner.
Step1 is the Initial Valuation. During a selling process, valuation should be kept current. In a going concern, value will be incrementally changed with literally every business transaction. To capture the accumulation of such changes, valuation should be updated as of the Offer to Purchase, and again as of the Close of Sale. We will talk more about this later.
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