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SBA business Valuations

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SBA business valuations - 10 things you need to know

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SBA business Valuations

  1. 1. SBA Business Valuation 10 things you need to know
  2. 2. SBA SOP 50 10 5 (h)1 O Business Appraisal Requirements – Change in ownership pp.171-173. O If goodwill > 250k an independent business appraisal is required O If there is a close relationship between the buyer and seller (i.e. family members or business partners) then business appraisal required O Qualified Sources-for Business Appraisals O Equity Injection – goodwill >500k = 25%
  3. 3. Which report format ? O USPAP (ISBA promotes Standards 9 and 10) O Appraisal Report O Restricted Appraisal Report O AICPA SSVS No.1 O Calculated Value O Conclusion of Value
  4. 4. Which standard of value? O SOP is silent on this topic O Fair market value? O Investment Value?
  5. 5. Value of Intangible Assets O SOP 50 10 5 (h) require that the lender loan documentation must include the value of the intangible assets (p.121). O The value of the intangible assets is determined by the value derived in the business appraisal minus the sum of working capital assets and the fixed assets being purchased.
  6. 6. Data you need O Lenders Credit Memo O Business tax returns and/or financial statements for the most recent 3 years O Interim financials (if applicable) 180 day rule p.195 SOP 50 10 5(h) • Consummated purchase contract • W-2’s for equity owners • Projections if the company has savvy financial management they can justify use of the DCF
  7. 7. Be prepared to answer stakeholder ?’s regarding an adjustment to the P&L to depict fair market rent when the real estate is owned by the operating entity
  8. 8. Be prepared to explain to stakeholders: S-Corp distributions are not an add back to determine cash flow
  9. 9. Business owner, business broker, and bank thought normal volume of work in the queue was an excess asset
  10. 10. What if business appraisal is lower than purchase price O Any amount in excess of the business valuation may not be financed with the SBA guaranteed loan
  11. 11. Bonus Items: Other pertinent info O You do not need to conduct a site inspection O Insure interim P&L and BS are on the same basis of accounting as the prior years info O Undocumented adjustments to income and/or expense claimed by the stakeholders
  12. 12. Citations O US Small Business Administration Office of Financial Assistance, SOP 50 10 5 (H), May 1, 2015. O Uniform Standards of Professional Appraisal Practice (USPAP) O American Institute of Certified Public Accountants “Statements on Standards for Valuation Services No. 1”, Introduction and Scope (AICPA SSVS No. 1) O SBA Information Notice-Effective May 4, 2015, Control No.: 5000-1340

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