BUSINESS VALUATION & SELLING YOUR BUSINESS Alina Niculita, CFA, ASA, MBA 1

Purpose of Valuation Buying or selling a business Buying or selling a partial interest Obtaining or providing financing Initial public offering Leveraged buyout ESOP Estate, gift and income tax Buy/sell agreements Divorce settlements Damage cases Mergers and acquisitions Dissenting shareholder actions Determining life insurance needs 2

Controlling Interest v. Minority Interest ControlMarketability Controlling Interest > Minority Interest Controlling Interest > Minority Interest 3

Controlling Interest v. Minority Interest HYPOTHETICAL EXAMPLE Controlling Interest Value per Share: $1,000 Less: Discount for Lack of Control: 0-20% Less: Discount for Lack of Marketability:0-30% Total discounts: 0-50% Minority Interest Value per Share: $500-$1,000 4

Standard (Definition) of Value Fair Market Value Tax Purposes 5

Standard (Definition) of Value Fair Value Shareholder Disputes Purposes Divorce Purposes 6

Standard (Definition) of Value Fair Market Value. Usually assumes discounts for lack of control and lack of marketabilityFair Market Value. Usually assumes discounts for lack of control and lack of marketability Fair Value (Control Value). Usually without any discountsFair Value (Control Value). Usually without any discounts 7

Standard (Definition) of Value Strategic (Acquisition) Value. Mergers and acquisitions purposesStrategic (Acquisition) Value. Mergers and acquisitions purposes Investment Value. Divorce purposes.Investment Value. Divorce purposes. Intrinsic or Fundamental Value.Intrinsic or Fundamental Value. 8

Premise of Value Going concern value Liquidation value 9

Valuation Date (“As of” Date) Internal FactorsInternal Factors External factorsExternal factors 10

Understanding the engagement Purpose of our valuation? Standard of Value? Controlling/Minority Interest? Premise of Value? Valuation date? 11

Overview of the Valuation Process. Step 6: Value & Delivery Step 4: Discounts & Premiums Step 3: Valuation Approaches Step 2: Financial, Economic & Industry Analysis Step 1: Understanding the Engagement Step 5: Sanity Checks 12

Summary of business valuation approaches and methods Income ApproachMarket ApproachAsset Approach Based on the present value theory Based on the economic principle of substitution Current value of all assets (tangible and intangible) less current value of all liabilities. Methods:  Discounted Cash Flow Method  Capitalization method Primary Methods:  Transaction method  Public guideline company method Other methods:  Past transactions  Buy-sell agreement  Rules of thumb Methods:  Adjusted net asset value  Excess earnings method 13

Planning for business exit 5 years good rule of thumb 5 years good rule of thumb 3-7 years3-7 years 10 years (significant tax planning)10 years (significant tax planning) 14

Business value enhancements Financial statement clean up - CPA Improve key operating metrics - Industry Consultant Employment/confidentiality agreements signed - Attorney Proper ownership of all intellectual property. - Attorney 15

Who are Potential Buyers for my Business? Family Other existing owners Key management Employees Internal Transition Options Outside third party interested in acquiring a business. Strategic buyer in the company’s industry or related industry. Private equity group or other passive investor group. External Transition Options 16

Buy-Sell Agreements Contracts between companies (corporations, LLCs, or partnerships) and their owners.Contracts between companies (corporations, LLCs, or partnerships) and their owners. What will happen with the owner’s interest when certain events (called “trigger events”) occur.What will happen with the owner’s interest when certain events (called “trigger events”) occur. 17

Appraiser’s Qualifications American Society of Appraisers: FASA, Fellow of the ASA; ASA, Accredited Senior Appraiser; AM, Accredited Member.American Society of Appraisers: FASA, Fellow of the ASA; ASA, Accredited Senior Appraiser; AM, Accredited Member. AICPA: ABV, Accredited in Business ValuationAICPA: ABV, Accredited in Business Valuation National Association of Certified Valuation Analysts: CVA, Certified Valuation Analyst; AVA, Accredited Valuation Analyst.National Association of Certified Valuation Analysts: CVA, Certified Valuation Analyst; AVA, Accredited Valuation Analyst. Institute of Business Appraisers: MCBA, Master Certified Business Appraiser; CBA, Certified Business AppraiserInstitute of Business Appraisers: MCBA, Master Certified Business Appraiser; CBA, Certified Business Appraiser 18

Build Advisory Team Business Transition Advisor/Exit PlannerBusiness Transition Advisor/Exit Planner CPA (tax)CPA (tax) Attorney(s) of various specialties (tax)Attorney(s) of various specialties (tax) Business Appraiser/Valuation AnalystBusiness Appraiser/Valuation Analyst Business Intermediary/Business BrokerBusiness Intermediary/Business Broker Industry ConsultantIndustry Consultant Financial PlannerFinancial Planner 19

Maximizing my Sales Proceeds 20

Best Case and the Nightmare Tax DescriptionBest Case – All Cap Gains Worst Case – C-Corp Double Taxation Fed Individual Cap Gain 20% Fed Dividend Rate 20% Fed Invest Income 3.8 Fed Deduction Phase Out 1.2 Fed Corp Rate NA34 Oregon Individual Rate 10 Oregon Corp Rate NA7 Total 35%71% There are planning strategies that exist to minimize the C-Corp worst case taxation rate. 21

THANK YOU Linked in: Alina Niculita 22