Presented by Dale L Clack August 3, 2018 Valuing Businesses Presented by Dale L Clack August 3, 2018

About Dale Clack VP, Loan Officer - Midwest Regional Bank SBDC Financial Consultant for 7 years Colorado Real Estate Broker since 1994 Business Broker for 17 years IBBA Instructor, Business Valuation for 14 years, Taught over 1,000 business brokers nationwide CBI – Certified Business Intermediary, IBBA CPA – California and Michigan for 20+ years MBA – Finance, Golden Gate University BA – Accounting, Michigan State University

Steps in the Process Step 1 – What is for Sale? This determines what methods of valuation Step 2 – Recast Financial Information to find real economics of the Biz Step 3 – Estimate a Selling Price

Step 1 – What is for Sale 100% of the business Assets vs. Stock Answer impacts approach, methods, value Value business separately from the real estate What is "goodwill" and how is it valued?

Step 2- Recast Financial Information Collect 3 years of data to review trends Determine EBITDA – for value over $1Mil Earnings Before Interest, Taxes (income), Depreciation & Amortization Determine DE - for small biz valued up to $1M EBITDA + fair compensation for one owner Danger in having too many "add-backs“ Include "add ins": underinsured, fair market rent, kids work for free

Step 3 – Valuation Approaches Just like in Real Estate … Asset Approach Add up the value of assets Income Approach – Capitalize an income stream Market Approach – Sale of “Comps” Data Bases: BizBuySell, BizComps, Pratt’s

Step 3 – Methods in the Approaches Percentage of Sales Use “comps” from a data base Multiple of DE or EBITDA DE: 1x – 3x EBITDA: 3x – 5x Capitalized Income (EBIT) to value invested capital Build up a cap rate that is appropriate for the risk Could vary between 20% to 50% Reconcile the differences between methods Which are better & why

Business Valuation Summary Business valuation is a complex task Requires expertise to do it right There are experts to assist you Business Brokers, CPAs, Attorneys, Business Appraisers Advise your customer/client: Hire an attorney Hire a CPA with business value expertise and tax knowledge for this transaction

Resource “CABI” - Colorado Association of Business Intermediaries Business Brokers with the CBI designation Attorneys & Lenders who facilitate deals CPAs with business valuation knowledge URL: www.coloradobusinesses .com FAQ’s Articles library

Contact Information Dale Clack Work: 720-274-9326 Mobile: 303-204-3106