Income Valuation, Business Valuation Edmonton and Appraisal Divorce Dispute Sale
How to Value an Edmonton Business - Income Valuation for Divorce, Dispute or Sale.
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All of my valuations are based upon the methodology in the “25 Factors Affecting Business Valuation” This basic transparent valuation system properly applied will resolve most internal and external issues at a very affordable price.
Business Valuation By Eric Jordan CPPA wins in Court of Queen's Bench the Superior Trial Court for the Province of Alberta, while defeating a well known Chartered Business Valuator. (CBV)
Email eric@pin.ca for legal proof of the client win in court,
certification, and methodology.
The 25 Factors system of Business Valuation is leap years ahead of the competing systems to accurately measure business value.
ALL BUSINESS VALUATIONS SHOULD BE DONE THIS WAY.
This is the key Point: If someone is presenting or proposing a valuation without taking these factors into consideration the valuation number is likely to be misleading and almost certainly not accurate for a small business.
Video explaining my approach to Business Valuation.
Eric Jordan business valuator is an accredited CPPA giving you a business valuation certified by an experienced industry specialist, making this one of the best business valuation firms in Edmonton with CPPA certification. If you are considering a small business valuation due to an acquisition in Edmonton you may wish to compare CBV designation as compared to CPPA. Chartered Business Valuators are unlikely to have the vast experience possessed by Eric Jordan. CBV program shows you how to become a certified business appraiser in Edmonton . You may pass the Chartered Business Valuators CBV Canada exam but the resulting business valuations can generally be shredded by the experience of someone like Eric Jordan using the “25 Factors Affecting Business Valuation. Watch the YouTube on the page and pay attention to the Experience section. You will surely agree Eric Jordan distinguishes himself as the best qualified valuator to give you an affordable and professional business valuation in Edmonton for 2021.
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25 Factors Affecting Business Valuation
By Eric Jordan (CPPA)
Copyright 2017; 2018 Eric Jordan Publisher by Eric Jordan 209 – 1027 Pandora Avenue
Victoria, B.C. Canada ISBN 978-1-7750074 Printed in China`
The author is the proprietor of www.pin.ca website established for over 20 years (January 1998) promoting business opportunities and businesses for sale.
Eric Jordan is the host www.BusinessforSaleRadio.com heard on many radio channels across the USA, Canada and around the world.
Please visit the website for local times and stations.
25 Factors Affecting Business Valuation
Contents
Acknowledgments.......................................................................... iv
Preface............................................................................................. v
Introduction..................................................................................... 7
Factors Affecting Business Value
Factor 1: History ........................................................................... 14
Factor 2: Purpose .......................................................................... 15
Factor 3: Financials....................................................................... 16
Factor 4: Research & Development (R&D).................................. 19
Factor 5: Shareholder Agreement ................................................. 23
Factor 6: Value of Employees....................................................... 25
Factor 7: Valuing Distribution and Client Base............................ 27
Factor 8: Value of Supply Chain .................................................. 28
Factor 9: Social Network - Internet Footprint............................... 29
Factor 10: Dominance in the Marketplace.................................... 30
Factor 11: Processes and Procedures ............................................ 31
Factor 12: Company Documentation............................................ 32
Factor 13: Industry Averages........................................................ 34
Factor 14: Lease Terms................................................................. 35
Factor 15: Leasehold Improvements............................................. 37
Factor 16: Equipment.................................................................... 38
ii
25 Factors Affecting Business Valuation
Factor 17: Inventory...................................................................... 39
Factor 18: Business Risk including Liquidity............................... 40
Factor 19: Currency Fluctuations and Geopolitical
Considerations.......................................................... 41
Factor 20: Opportunity.................................................................. 42
Factor 21: Leverage - Terms and Cost of Money......................... 43
Factor 22: Minority Interest .......................................................... 44
Factor 23: Special Interest Purchaser............................................ 45
Factor 24: Redundancy in Management ....................................... 46
Factor 25: Return on Investment................................................... 47
Operations Manual Template........................................................ 43
Conclusion .................................................................................... 54
iii
Acknowledgments
I want to dedicate this book to the teachers and mentors in my
life who made me who I am. I am grateful for my mother and
father, Fred and Edith Jordan who taught by example. I would
like to thank Roy and Earle Hamilton; John Koelle; Reid Nunn;
Debby Schlutter; Bill Massey, my cousin; Ange, my daughter; and
all the family members who helped me along the way. A special
tribute to Charlie Salfries who was my first real mentor and who
made me realize I could be whoever I wanted to be. Thanks
Charlie.
.
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Preface
This book offers 3 things:
1. Intangible Assets and Intellectual Property
This book will prove that the average business today consists of 70% to 80% Intangible Assets.
2. 25 Factors Affecting Value
I will show the 25 main factors affecting business valuation that must be measured in order to evaluate a business. Most of these factors are intangibles. I will explain how and why these factors affect the value of a company. The methodology becomes clear and is proven in the current marketplace snapshot.
3. Operations Manual Template - INCLUDED FREE - Processes, procedures, systems, and the
documentation of those factors are generally contained in what is commonly called an
Operations Manual. Having an up to date functional operations manual could add up to 25%
more value to your company. It is imperative that everyone have one of these. I have enclosed a free template. This template will help you build your own company specific operations manual that, when filled out, will be the best insurance you could have for your business, your employees, your clients and your family. It will also add tens of thousands to your value; some larger businesses could gain hundreds of thousands.
25 Factors Affecting Business Valuation
Links from real and accredited people and reputable sources, easily verified on the internet, will be provided throughout the book to prove my points with logic and irrefutable evidence. In the electronic versions, you can just click the links.
Your time will be respected. There should be no empty words, just useful information that is actionable.
Introduction
Procter and Gamble paid 60 million dollars for “The Art of
Barber” a small chain of 36 barber shops in 2009. Imagine a
barber shop being worth 1.66 million dollars. I did a
valuation within this same industry using the 25 factors affecting
business valuation. My methodology and conclusions were
validated when I came across the Procter and Gamble information.
This made my client feel very confident about my report.
http://adage.com/article/news/cpg-marketing-p-g-buys-art-shaving-retail-
stores/137065/
Price confirmation for the “Art of Barber” sale:
http://wwd.com/beauty-industry-news/beauty-features/gallery/procter-gamble-
acquisition-timeline/
Intangible Assets and Intellectual Property are the elephants in the
room when it comes to small business valuation. Few valuators are
willing to come out of the old-fashioned comfort zone provided by
their associations to address the measurement of Intangible Assets.
Our methodology is not new. Venture Capitalists and industry
specialists understand and use this kind of methodology in daily
business. What our proprietary system has done is to bring these
currently used processes down to the small business level. This
way, the value of a business can be measured using 2018
methodology and processes instead of the 1970’s model that is
now most commonly used in business valuation.
Wisdom and experience cannot be taught in an accounting class.
Section 1:
Intangible Assets and Intellectual Property: Intangible Assets make up the majority of the value in most businesses. My objective in this section is to help you understand and accept that it is true. 70% to 80% of the value of your business is intangibles. If this is not true you should be concerned.
Intangibles rule the way we live:
Google maps get you where you are going. Amazon is the largest store in the world and the
owner is now purported to be one of the world’s richest men. eBay. Who has not used eBay? Facebook and Twitter are two of the most popular and commonly used social networking apps. Airbnb, Uber, and GrabTaxi are all “disruptor” business models that changed how things are done. Netflix has changed the way most people watch television and movies. Smartphones are streaming data to the masses, including business people.
Intangibles in business I want to refer you to an internet site that you may not be familiar with unless like me, you have a reason to follow up such information. Crunchbase.com - Crunchbase reports on funding, mergers and sales on a more global scale than most information sources ON A DAILY BASIS, tracking hundreds of millions of dollars in business. Most of these hundreds of millions of dollars that trade daily are intangible assets. Prove it to yourself and look at the website. The following
is an example of a daily report.
www.Crunchbase.com- Daily Newsletter - July 21, 2017
Klarna raises $225M for payments. Private equity firm Permira will pay $225 million for a stake
of at least 10 percent in Klarna, the Stockholm-based online payments unicorn (Unicorn Pay is an online Payment Gateway Services Provider). Permira will buy shares from existing
shareholders General Atlantic, DST and co- founder Niklas Adalberth.
Insurance is a hot space for Venture Capitalists Funding for insurance-focused startups has shot up dramatically in recent quarters, with a big chunk of investment coming from major insurers, a Crunchbase News analysis finds.
In other news, we look at the massive growth spurt that preceded the latest Series A for loan startup “Self-Lender.”
Shyp curtails service, cuts staff. On-demand shipping service Shyp announced in a blog post that it is withdrawing from all but one market, the San Francisco Bay Area, and cutting staff at headquarters in what it described as an effort to prove its business model for long-term success. Up till now, Shyp had also been operating in Los Angeles, Chicago and New York.
Betterment closes on $70M. Online financial adviser Betterment has raised $70 million in a new Series E-funding led by Kinnevik. The New York-based company has raised a total of $275 million to date.
Recent Activity on Crunchbase 181 Funding Rounds Added 130 Acquisitions Recorded $2.5B
Fundings Captured 12,087 Entities Updated
Make a list of the non-tangible things in your business. It will surprise, if not shock you.
http://www.kmworld.com/Articles/Column/The-Future-of-the-Future/The-world- of-intangible-asset-valuation-
110580.aspx
Another link - same conclusion. https://www.strategy-business.com/article/08302?gko=47f49 60% to 80% back in 2008.
Employees and client lists are not tangible assets - but try to run a business without one or the other. What value does a business with a storefront have without a valid, renewable lease? You might have a partner; without a solid, up-to-date shareholder agreement in place how secure is your investment? Did you know that some franchises are for a specific time period, perhaps twenty years? After that you may have only the salvage value of used equipment and leasehold improvements. Your old location might be given to a new franchisee or the franchisor may tell you that in order to continue, you need to move five blocks away into a new building and completely rebuild the store in order to have a new twenty-year franchise agreement. What do you think this sort of franchise is worth in the last four or five years of the franchise agreement?
10
25 Factors Affecting Business Valuation
What is a long-term lease in an airport worth to a high profit food franchise? Add to this some exclusivity and see how that affects things. What about Research and Development (R&D)? The R&D you keep investing in might be written off in the year it was done, but is it gone? Investors in Google and Amazon say NO. Many learned people share the same opinion I do; I hope to prove my points by showing you the profiles of accredited people who have written articles that I believe strongly support and prove my position. If you don’t have a detailed, well written, and up to date operations manual you are probably missing 25 percent of the value of your business. Without a detailed map of what to do, your business cannot run for any length of time without you. Who would want to buy a business without a good operation manual? Who would want to lend money to a company without an operations manual that would allow the company to survive even if the founder was gone? This is one of the reasons why financial institutions prefer
financing franchises over independent business startups.
I believe I have proven the point that seventy to eighty percent of the value of businesses
today is intangible.
Section 2
These are the 25 main factors affecting business valuation that must be measured in order to evaluate a business. Most of these factors are intangibles. I will explain how and why these factors affect the value of a company. My focus is companies valued at under 10 million dollars.
Factor 1: History
Factor 2: Purpose
Factor 3: Financials
Factor 4: Research and Development
Factor 5: Shareholder Agreement
Factor 6: Value of Employees
Factor 7: Value of Distribution
and Client Base Factor
8: Value of Supply Chain
Factor 9: Internet Footprint – Social Network
Factor 10: Dominance in the Marketplace
Factor 11: Processes and Procedures
Factor 12: Company Documentation
Factor 13: Industry Averages
Factor 14: Lease Terms
Factor 15:Leasehold Improvements
Factor 16: Equipment
Factor 17: Inventory
Factor 18: Business Risk including Liquidity
Factor 19: Currency Fluctuations and Geopolitical Considerations
Factor 20:Opportunity
Factor 21: Leverage - Terms and Cost of money.
Factor 22: Minority Interest
Factor 23: Special Interest Purchaser
Factor 24: Redundancy in Management
Factor 25: Return on Investment
Factor 1:
History
The value of a business starts with the unwritten knowledge
of the business founders when they started the business. By
digging into their past, we get a glimpse of what unique
knowledge they had and what they were attempting to develop.
What special talents did the founders have? This can be a big help
as we go through the rest of the factors, as we can understand the
“purpose” the founders had in mind when they started. In many
cases, one will find that there was an unfilled need and a plan to
fill the need. History gives us a solid starting point.
Here is a real-world example of history to the rescue:
Kraft Cadbury - History to the rescue.
When Kraft took over Cadbury in 2010 it was not looking pleasant
as many Cadbury people were thinking Kraft would dilute the
quality. Kraft management went back into the founder’s history
and showed how the two founders were very similar. They were
able to pacify the Cadbury people with the similar beginning
information and it was one of the smoothest mergers Kraft ever
undertook. (Read the whole story)
Factor 2:
Purpose
We need to know the purpose of the valuation to
determine what factors are relevant. If the purpose of
the valuation is to determine value for the firm and
establish a share price to facilitate a new partner coming in, it is
different than establishing a price for the purpose of a divorce
proceeding.
The divorce proceeding requires we establish a “fair market value”
on the legally defined “Effective Date of Valuation.” “Terms and
Cost of Money” would not be a relevant factor because no
seller terms would be considered.
A valuation for the purpose of establishing value of shares for a
partner coming in, would certainly look at “Terms and Cost of
Money” as a relevant factor affecting value. If the “buy in” is
100% financed by the existing partner or partners and the “risk”
minimized for the buyer, a higher valuation is likely because of
lack of risk.
If I am hired by a prospective buyer of a restaurant, the purpose of
the valuation changes. I would look at the value of the business to
the current owner, but additionally I would be looking at how the
subject business would fit on the new proposed purchaser. In this
way, the prospective buyer can make an informed decision about
making an offer to purchase. When we look at purpose, this system
requires that we ask the question, “value to whom?”
Factor 3: Financials
When analyzing financial statements one must adjust the
statements to reflect only purchases and expenses at
prevailing fair market price that are related directly to the business.
We want to find out if the operation of the business is making
money or losing money. We need to know if there are redundant
assets that need to be stripped out of the balance sheet. For the
purpose of a business valuation we want to look at the balance
sheet and income statements. (Income statements are sometimes
called profit and loss statements).
We will need to normalize the information. Any underpayments,
perks or advantages to anyone including owners, friends, and
family must be accounted for at fair market value. Once
everything is adjusted to “fair market” we have what
would be called “Normalized Net Income.”
Depending upon the situation and purpose we may want to look at
2 to 10 years of financial statements. If auditing is required I
suggest an outside accounting firm for that process. The delicate
part for small business valuation is “discretionary income.”
What to count, how to measure, and what is the purpose.
Determining the “Normalized Net Income” is a real skill set and
the first and most important step in determining the value of your
small business, any other term implying the same thing is suspect.
(Small business being less than ten million dollars in sales.)
If you are reading financial information about a small company
and you see the terms, owner's discretionary income, seller's
discretionary income, seller's discretionary earnings, free cash
flow, seller's discretionary cash flow or owner's cash flow. BE
CAUTIOUS! These are terms that people feel they can trust, but
in fact they are often very misleading. You may also see the
term EBITDA (Earnings before Interest, Taxes, Depreciation
and Amortization) this is a legitimate term, but only when
used in the right context.
If these terms are used in relation to the sale of a small business,
someone (usually the buyer) can be easily misled. The managers of
banks and other financial institutions have been misled by these
terms so often that their head offices are often very skeptical about
financing the purchase of any small business.
OWNER'S DISCRETIONARY INCOME: This term will
often be used by those trying to sell a franchise. They will show
you a number like $75,000 per year, or perhaps even $90,000 for
owning and operating something like a plumbing franchise. What
they do not make clear is that the $90,000 per year is
BEFORE the owner/manager/PLUMBER is paid. Depending on
where you live a plumber will probably make $65,000 to
$85,000 a year just by going to work every day.
If the people selling the franchise were being truthful they would
use the term “Normalized Net Income” that would show the profit
after everything, including the owner’s wages, were paid out at fair
market value. If the fair market value of the plumber's/owner's
wages were $70,000 the true profit figure would be $20,000 not
$90,000. The perpetrators are generally white shirt and tie, and go
to great lengths to convince buyers they are professionals, and in a
dark way, that is true.
“Free Cash Flow, Owner’s Cash Flow and Owner’s Discretionary
Income” are all 'weasel' words used in the process of separating
buyers from their hard-earned money.
EBITDA (Earnings before Interest, Taxes, Depreciation and
Amortization)
Some industry groups think it is okay to include one
owner/manager wage in EBITDA, which results in the same
misleading situation. You therefore must be very careful in the
context that EBITDA is used, most especially if dealing with small
business and the numbers are being explained by a deceitful sales
person or owner.
EBITDA is generally used as a measure of a company’s operating
cash flow based on stated earning from financial statements
BEFORE interest, taxes, depreciation and amortization.
https://www.entrepreneur.com/encyclopedia/owners-salary
Here are some searches you may want to do to confirm the
conclusions above.
normalization of financials in a business valuation
net income after normalization
owner’s income included as company earnings.
Factor 4: Research & Development (R&D)
Your R&D was written off on your taxes. Is the R&D
really gone? Generally, NOT.
Research and Development in most western nations is written off
for tax purposes in the income statement/profit and loss. For tax
purposes this is reasonable and lawful.
For the purpose of valuation this is not so true. The value of the
R&D did not disappear in the year it was written off. Most often it
is added to an existing base of R&D and will be added to again in
the next year. It is my opinion that the useful lifespan of
R&D is somewhere between 5 and 12 years in some
industries; in others, the R&D is accumulative, meaning that it
keeps on growing. For the purpose of valuation R&D
could be accounted for in the balance sheet as an
intangible asset. This means that depending upon the individual
business, the valuator will need to make a judgement regarding
lifespan of the R&D and possibly adjust the balance sheet to
correspond.
I am not the only one to come to this conclusion. Millions of
shareholders of public companies and investors in private
companies believe this is true. This is why companies like Uber
and Airbnb have such high valuations. People are investing, not
because these companies are making a lot of profit, but because the
investors believe in the R&D. For public companies, Amazon
for example; not yet returning a lot of profit but certainly a
company with lots of R&D that people believe in by the
billions of dollars. I’m not sure how many billions of dollars of
proof I would be expected to produce, but one could compose a
very large list of both public and private companies where the
share price or valuation is based upon the perceived value of the
R&D.
Unless purchased, Brand is the result of R&D and marketing
within. When R&D is part and parcel of a brand, the R&D often
has an accumulative value. Uber would be worth much more
than the accumulated value of their R&D, as would most
companies who have developed things and are successful.
Stability and growing sales are key to the measure.
Certainly, with any kind of software company, the R&D is of
immense value but it may not be shown in the balance sheet. There
is a reasonably simple way of looking at this. Many small business
owners have both an operating company and a holding company
with identical ownership. The holding company generally holds
the real estate and possibly other hard assets. The operating
company runs the business and pays the holding company fair
market value rent on the real estate or other hard assets. The key is,
it must be done at fair market value.
For purpose of valuation consider that there is a development
company and an operating company. The development company
does the R&D and then sells the R&D to the operating company.
Now you have a measured and identifiable intangible asset with a
receipt that can be placed into the balance sheet as an asset and
depreciated over time, instead of being a direct cost this year in the
income statement.
There are some tax rules in different jurisdictions for all of this
according to the Association of Chartered Certified Accountants in
the UK.
http://www.accaglobal.com/gb/en/student/exam-support-
resources/fundamentals-exams-study-resources/f7/technical-articles/rd.html
Under International Accounting Standards (ISA) 38, regarding
R&D an intangible asset arising from development can be
capitalized if an entity can demonstrate all of the following criteria:
the technical feasibility of completing the intangible asset
(so that it will be available for use or sale),
intention to complete and use or sell the asset,
ability to use or sell the asset,
existence of a market or, if to be used internally, the
usefulness of the asset,
availability of adequate technical, financial, and other
resources to complete the asset, and
the cost of the asset can be measured reliably.
UK has slightly different interpretations. (See link above)
NOTE THAT WE VALUE R&D FOR VALUATION
PURPOSES NOT TAX PURPOSES. SOME OF THE ABOVE
WOULD BE OF INTEREST TO THOSE WISHING TO
RAISE MONEY AND WANTING TO LEGITIMATELY
SHOW VALUE IN THE COMPANY.
Some very bright people have done a lot of research on this
subject:
Read the background on them first:
http://www.valens-research.com/about/background/
Now, read what they have to say about capitalization on the
balance sheet:
https://www.valens-research.com/rd-investment-not-expense-capitalizing-rd-
impacts-understanding-corporate-profitability/
https://www.theguardian.com/business/2017/apr/15/tesla-electric-cars-sparks-
fly-wall-street-valuation
Factor 5: Shareholder Agreement
Shareholder agreements are the legal basis for dealing with
all matters in a business. Without a legally binding
shareholder agreement any dispute can become a seriously
costly matter. Minority shareholders are probably the most at risk
in a situation where there is no legal shareholder agreement. Just
ask any minority shareholder who has been involved in a dispute.
There have been situations where minority shareholders thought
their 10% interest in a million-dollar company would be worth
$100,000 this is not necessarily true.
When, how, and how much you might recover as a minority
shareholder could be half, unless there is a strong legal shareholder
document to support your claims. Inversely, majority shares have
the possibility of being worth more. Potential for protracted legal
wrangling could cause a valuator to come with a lower value than
would otherwise result if a proper legal shareholder agreement was
in place. There are different sorts of “shotgun” clauses that can be
included in these shareholder agreements. Payouts can be over a
number of years, so the company can afford to pay someone
out.
A shareholder agreement that was detrimental to the remaining
shareholders could result in a much lower value as well. Have a
lawyer you trust review any shareholder agreement before you
sign. Google “shareholder agreements”to find anything you are in doubt about.
Factor 6: Value of Employees
Crunchbase data shows firms working with Artificial
Intelligence (AI) that are being funded and
trading hands at valuation numbers representing ten
million dollars per employee (USD).
Crunchbase.com is not an academic journal but they are the
world’s only relevant source of data on large tech buyouts and
funding is updated on a daily basis. Tens if not hundreds of
millions of dollars in new deals are posted daily.
www.crunchbase.com is free to view.
QHR - Canadian Company, Kelowna, British Columbia,
Canada sold in fall of 2016.
QHR sale ($170,000,000 sale with 200 employees) = $850,000
CDN per employee and rather strongly makes the case that skilled
employees are worth something.
Established Web Design and Digital Ad Agency For Sale
South Florida, Florida UNDER OFFER (recent 2017)
Asking Price: $1,245,000 (USD)
Furniture / Fixtures included
Sales Revenue: $780,000 (USD)
Cash Flow: $303,000 (USD)
Asking: $155,000 per employee
This is not to say that every company is worth millions per
employee, but it is important data to reference. The push for high
wages in the restaurant industry is causing the restaurant industry
to automate. The employees that are valuable are those who are
working on the automation and artificial intelligence robots that
will replace the restaurant employees.
Most businesses will fall somewhere in between. Doing the
research and understanding the proper measurement for each
individual business is a critical exercise in any accurate business
valuation. There is a lot of room between zero and ten million
dollars for employee value. Employees and contract workers are
generally both considered when doing business valuation.
Factor 7: Value of Distribution and Client Base
Did you ever wonder why products appear on the
supermarket shelf at eye level? There is a whole industry
built around product placement. Planogram defines the
what, where, and how much in retail merchandising.
Manufacturers, wholesalers and distributors invest a lot in getting
proper visibility on the retail level. The end buyer can also be
considered as part of the client base. It can take many years to
build a client base that will go looking for the product you want to
sell. For the purpose of valuation, one must be able to measure the
retail purchaser, the retailer, the wholesaler and distributor. How
much time and money would be spent to replace what has been
achieved? This is why companies buy other companies
instead building from scratch.
We should point out that not every factor affecting value is
relevant in each individual valuation. One must know what factors
are important to measure and what factors are irrelevant for each
subject business.
Factor 8: Value of Supply Chain
First: Imagine yourself as the owner of a company importing
old Russian military rifles, ammunition, and related items
into Canada. Your company is a supplier to retailers and
also has an online store. Your supply chain is from the Ukraine.
This is about as unstable as it can possibly be with the current
geopolitical situation, and you are unable to get product.
This leaves a very big dent in your business and it is not going
to be hard to measure the value.
Second: Imagine yourself as the exclusive Canadian importer of
several well know Asian food brands. Sales are strong, and
everyone is happy. The ties are strong and go back 35 years. This
will take a lot more work to measure than scenario one.
Most valuations will be somewhere between these two extremes.
Factor 9: Internet Footprint – Social Network
Look at your website. How well does it place on Google for
relevant searches? How many views does it get? Is it an e-
commerce website? What are the details?
Additionally, there are all of the social networking sites. Facebook,
Twitter, LinkedIn, Google+, YouTube, Pinterest, Instagram,
Flickr, Reddit, Snapchat, WhatsApp, Quora, Vine, StumbleUpon,
and Digg are some of the more popular social media sites.
What percentage of your sales are e-commerce on your own
website?
Do you sell e-commerce on other platforms such as Amazon or
AliExpress?
If you are a service company what percentage of your business
comes from the internet? If you run a retail store, how much of a
role does your website and/or social media play in your customer's
decision to come to your store?
Even if this is not a relevant factor it may still be worth
considering because you, or someone else, can change this to make
it better. This is where the measurement comes in.
Factor 10: Dominance in the Marketplace
Dominance in the Marketplace.
Mention ketchup and most people will think of Heinz.
That is product domination in the marketplace. Mention
search engine and most people will think of Google.
That is domination of a service in the marketplace.
Most businesses will not be in such a fortunate situation. Some
companies will have 25% or perhaps 75% of the market within a
certain geographic area. If so, this will certainly increase
the valuation.
A fishing license or a dairy quota would have some dominance
effect.
There have been issues with cities who issue taxi licenses
promising in effect dominance, then the licensees have
been “interrupted” by a technology called Uber. The hotel industry
is similarly concerned with Airbnb and similar services.
A dominance situation that a valuator will commonly come across
is an exclusive lease for a service or retail category in a specific
geographical area, something like an airport, university, or
shopping centre. Profits are almost locked in for such situations so
of course the value is higher as long as the lease is long-term. In
some cases, the long-term lease might be the most valuable part of
the business.
Dominance is not always a relevant factor affecting value.
Factor 11: Processes and Procedures Agreements, Licenses and Other Intangible Assets
Unless it is a franchise, every company has their own
proprietary processes and procedures or something that is
patented with a long expiry date. A registered brand or
other intangible assets must be measured.
For example, a successful retail bakery in an urban centre with its
own proprietary processes and procedures that result in a product
that retail clients choose to purchase on an ongoing basis. This is a
huge consideration for value. The measurement of some of this is
often a ratio depending upon market share or penetration, and
the means to deliver via employee base. Most franchises today are
not doing something so unique, but have simply put very
tight processes and procedures into what would often be
considered a simple service. Think lawn services, hair salons,
tanning salons, pet grooming, sewer pipe cleaning, fencing,
car cleaning, car maintenance, and computer repair for just a
starter list. Keep in mind some franchises have a defined end
date and the franchisor may have no obligation to renew a
franchise.
Processes and procedures do not stand alone. There must also be
documentation which we refer to next. There is a whole section of
this book where we show you a template that can be used to
document the processes, procedures, and systems of a company.
Factor 12: Company Documentation
Imagine that you have a fully completed operations manual that
documents all aspects of your business. All the processes,
procedures, and systems are documented. It is done so well
that your business runs as smoothly when you are away as when
you are home.
Imagine that you run the same business that is just as profitable;
but where nothing is documented. As long as everyone is healthy,
all is well. You can’t be gone for weeks, perhaps not even for days
without the need to be in constant communication.
The first option offers security of income not only for the owner,
family and employees but also security of continued service for the
clients. The owner could protect his family from his/her untimely
death by having life insurance that is readily available for most
business owners. Adequate disability insurance for small business
owners is generally too costly and usually not even available.
That leaves the owner, family, employees, and clients all at a lot of
risk. The more of the operations manual you have completed, the
better you have protected the future for yourself and all of those
around you.
Not all of this would be on a computer, but rather printed out
with spaces for computer passwords, banking information.
Where are the spare keys? Important client and supplier
information. The list is comprehensive.
All of the information on each employee's job needs to be
documented and regularly updated. This is especially important for
the founder of a small business to leave a paper trail for the family
to follow. This insures the business will continue if something
happens to key players.
A buyer will pay a lot more for a well-documented company than
one where the owner says; “I will train you.” Sure, and what
happens if the owner has a heart attack the day after the sale?
Documentation is so important; a template for making your own
small business operations manual is included at the end of this
book to give our readers added value.
Factor 13: Industry Averages
Industry averages are not a relevant factor for all business
valuations. One must make sure the comparable data is truly
comparable. Air conditioning companies in Miami, Florida are
not comparable with air conditioning companies in Seattle
Washington.
Many valuators use comparable sales as a major consideration, but
this can be very inaccurate as the sales figures don’t tell you if
terms were given, how much net profit was recorded for the
preceding years or if owner’s wages were included in the profit.
Costs can vary significantly.
Unless you are talking about franchises, no two businesses are
totally comparable, in fact most are very different. Being careful
to measure data that is truly apples to apples is most important.
Industry averages can provide a guideline. It must be understood
that industry averages include both winners and losers and are too
broad to provide any sort of accurate measurement for a specific
business. In some cases, industry averages will be important but in
cases where the business is more unique, the industry averages will
mean much less.
Factor 14: Lease Terms
A business with no lease, or a lease ending soon, has
limitations on its value. Costs of relocating could include
leasehold improvements, reopening, transferring utilities
and associated fees, new equipment and fixtures, to name a few. A
strong renewable lease is going to enhance the value of a profitable
business. However, a strong long-term lease can choke an
unprofitable company. If you sign such a long-term lease and if
something else happens (your supply or client base evaporates),
you are in a lot of trouble and the lease obligations might offset a
lot of inventory that is paid for, your company could be rendered
almost worthless due to lease obligations. Also, remember that
your landlord is not obligated to renew your lease or let you out
of a lease you have signed.
Reading the lease carefully is an important factor in business
valuation. When you are considering purchasing a business you
better know the terms and conditions of the lease you will be
taking over. You might want to be renegotiating the lease prior to
purchase to make sure you have enough time to make the purchase
worthwhile. The reputation of the landlord matters a lot.
A long-term lease negotiated in Calgary just prior to an oil price
downturn can have the effect of making the company
worthless to a prospective buyer. In other cases, a long-term
lease at a locked in rate can be more valuable than anything
else in the company. Lease terms need to be measured carefully
in a business valuation.
Factor 15: Leasehold Improvements
Leasehold improvements have three distinct value
classifications and are often valued along with equipment.
Value within an “operating business”
Value as “equipment in place” even if the business is not
in operation, but a reasonable new lease can be negotiated
Leasehold improvements and equipment may only be
worth “liquidation value” if the business is not operating
and you can’t negotiate or renegotiate a lease. Note
that in “liquidation value” it is important to calculate the
cost of liquidation which could run from 20% to 45% of
the total received
If you are opening an upscale spa or upscale restaurant you can
expect leasehold improvements sometimes called your “buildout”
to be between $300,000 to $1,000,000. In a business valuation,
one must consider the time left before renovations are necessary
again. If for some reason the franchise is lost, or the lease does not
renew, your leasehold improvements may be of little value. In
most cases used equipment is worth very little without a lease.
For accurate valuation one must measure by the correct
classification.
Factor 16: Equipment Tools, Vehicles and Other Hard Assets.
Equipment will generally be listed in the balance sheet along
with original cost and depreciated value. Fair market value
of the equipment is most often neither of these numbers.
Equipment generally has two classifications:
equipment value within an operating business
liquidation value
Equipment, in some cases, would be part of the leasehold
improvements and could have extra value as “equipment in place”
provided a lease could be negotiated.
Equipment may only be worth liquidation value if the business is
not operating. If this is the case it is important to calculate the cost
of liquidation, which could run from 20% to 45% of the total
received. It is important to know what measurement best suits the
purpose of the valuation.
Factor 17: Inventory
Inventory will generally be valued at cost, however there are
many mitigating factors. How marketable is the remaining
inventory? What would be the cost of selling the inventory at
retail, wholesale, and liquidation?
Inventory within an operating business is going to have more value
than “inventory that is in place” or value of inventory net of
liquidation. Net liquidation might be 40% less than
the gross liquidation figure, to take into account the costs
associated with the liquidation of the inventory. Inventory value
within an operating business may be very close to
wholesale depending upon marketability factors. One must
understand what they are measuring and for what purpose to
make an accurate estimate of value.
Factor 18: Business Risk including Liquidity
Asking all of the right questions and measuring each
situation is difficult and challenging.
Are you in an industry that is being disrupted or about to be
disrupted? An example would be the taxi business disrupted by
Uber. Is your business niche heavy into manual labour that will be
replaced by robots and artificial intelligence? Are there new
innovative processes and procedures being developed that could
replace what your company does? Could your industry niche
be outsourced to another country? Competition is of course
always a concern unless you have market domination through
some kind of exclusivity arrangement. If you lost a big contract
could a lender call a loan and put you into a liquidity crisis? If
a large contract could not or would not pay, could your
business find itself in a liquidity crisis? One must also look
at liquid investments as compared to investment in small
business that is not liquid. This is a huge consideration for most
investors. Who wants to wait two years or a lifetime trying to get
back money that was invested? This is why ratios are so
different between “liquid shares” that can be easily sold in
public companies and shares that might be hard to sell in a
private business.
Factor 19: Currency Fluctuations and Geopolitical Considerations
Currency Fluctuations and Geopolitical Considerations
Consider a Canadian company importing construction
materials from China with pricing in US dollars. Worse
yet, you are in Western Canada, perhaps Victoria.
You just signed a long-term lease on a much bigger space. The
next month OPEC decides to try and take out the North
American oil producers and the oil price tanks. The Canadian
dollar tanks along with oil. There is a government in place in
Victoria that is not Alberta or oil company friendly. How do
you think this would affect the value of your construction
material wholesale/retail operation?
When doing business valuation, it is best to be well-read on
business and politics both at home and abroad over a number of
years. Understanding the right questions to ask and knowing what
is important to whatever niche business you are dealing with is
essential.
Experience and wisdom cannot be taught.
Factor 20: Opportunity
Now we can go back to research and development,
processes, procedures, systems and employees. How well
is all of this is documented, and how well does it all work
together? Risk may of course temper some of the
opportunity enthusiasm in the final measurement. Do you know
the market trends and where your market niche is going and
where you are positioned within that market? When we
measure the R&D, processes, procedures, systems,
documentation, employees, contractors, and how well all of these
factors work together we get an idea of the potential for the
company.
Let us suggest you are an internet media company helping people
to brand and market their products and services. You have a young
and talented team that has been building for six years and are now
starting to show significant profit after taking the redundancy out
of the system.
The story could of course be exactly the opposite, the profit is in
the past, older workforce, losing market share and no R&D to
support growth.
Asking the relevant questions and finding out what is going on
within the company is the task of the valuator. One does not know
until they start the measuring process.
Factor 21: Leverage - Terms and Cost of Money
Depending on the situation, this factor may not be
applicable.
The cost of money is not uniform. A large company may have cash
on hand that they are receiving almost zero return on. This makes
their cost of capital much different than a small business or
individual who might have to pay market rates which could be 5%
to 25% depending upon each individual situation.
If your father-in-law has excess retirement money and is willing to
support you in your new business venture by loaning you $500,000
to $2,000,000 at 3% you have a huge market advantage going in.
Another thing that can happen is a retiring business owner may
decide you are a good manager and he will finance the business at
a very reasonable interest rate with almost no down payment. The
seller trusts the business is good and that you are a good manager.
The seller might feel more comfortable with some of his retirement
money still left in the successful business he built.
Compare this to the situation where a buyer must find his or her
own money for down payment and borrow the rest at market rates
that may be inflated to reflect perceived risk.
Factor 22: Minority Interest
Minority Interest
Most people think that if you own 40% of the shares in a
private company valued at a million dollars that the
value of the 40% block is $400,000. Not necessarily.
It depends upon your shareholder agreement and your ability to
finance any litigation necessary to enforce that shareholder’s
agreement. There are judges that might consider your minority
shares as only being worth half.
Having a solid shareholder agreement and understanding who you
are in business with can save you a lot of pain in the future. As a
minority shareholder, how are your dividends going to be paid?
Who governs that process? It is a lot easier to buy in than get paid
out. There are companies that actively seek to purchase minority
shareholder positions at a low price with the intent of negotiating
better terms from the majority shareholders who may not want to
face protracted litigation against an experienced and well financed
minority partner group.
Factor 23: Special Interest Purchaser
A special interest purchaser is a purchaser who already has
assets in place that with this purchase can take further
advantage of the efficiencies and economies of scale. If
there are significant advantages such as elimination of competition,
technology advantages, purchasing power advantages, and a
reduction in costs by sharing overhead, then the premium paid will
be or could be higher. The price could be much higher if there is
more than one potential purchaser.
A purchaser who has insider knowledge and information that
significantly reduces risk in the marketplace could definitely be
considered a special interest purchaser, in comparison to an arm’s
length, third-party buyer. In this definition, the working partners in
a small business would all be special interest purchasers. The
owner/ partners understand the risks and relationships at stake.
Because nothing really changes, there should be high client
retention and little risk to cash flow and profit.
An arm's length third- party must always be concerned about
relationships with both the supply chain and client list.
Factor 24: Redundancy in Management
W
Factor 24:
Redundancy in Management
What is the backup plan for management and how well is
it documented? This should all be part of an existing
operations manual and part of the company
documentation. However, because this point is so important it must
be covered again on its own. The higher up the food chain in the
company the more extensive we want the backup plan for each
management person.
What is the plan for everyone in management and how good does
the valuator find it to be? Is the operations manual remotely up
to date with computer related passwords?
The valuator must measure what is available and compare it to
what should be available.
Factor 25: Return on Investment
Return on investment is the most important factor and must
be considered first and last. From our financial review, we
should have found the “Normalized Net Income” if
everyone and everything was paid at market value.
We have measured the processes, procedures, systems,
documentation, and employees. We have looked at all of the other
factors affecting value and we have weighed them up, balancing
the risk and opportunity factors. Now we make a determination of
what is a reasonable return on investment with all of the relevant
factors measured and taken into consideration. Some very large
companies such as Amazon, have a very high stock price
without earnings to justify. On the other end of the scale would
be service businesses in an industry that is being trashed.
The valuator must understand and measure accordingly.
Section 3: Operations: Manual
Template
1.
Company Structure
2.
Products and Services
3.
Direct Employees, Contract Workers and Outside Contractors
4.
Licenses, Permits, Accreditation and Certification
5.
Business Suppliers
6.
Clients
7.
Office Procedures
8.
Business Procedures
9.
Business Equipment
10.
Office Equipment
11.
Emergency Equipment
1. Company Structure What is the legal structure of the company?
Proprietorship Partnership Incorporation Public
Names Percentages Shareholder agreement Where is the legal jurisdiction of the company?
Where are these documents stored?
Is this a franchise? If yes:
Where is the franchise agreement? What does it say about? o Length of time o Selling o Renewal rights
2. Products and Services
Provide an overview of the products and/or services produced by the business
3. Direct Employees, Contract Workers and Outside Contractors
Who does the work? Where is the production of goods and/or services done? What control do you have?
Direct Employees
Name, and other information Date of hire Salary, bonuses, and dividends Any extra perks? What
do they represent in the company? What roles do they play? What are their responsibilities?
Who do they answer to? Which people would be best able to replace them (often more than just
one person) In their own words, what exactly do they do? What confidential information does
this person have? Have they signed a confidentiality non-disclosure agreement - if no - why not?
Computer passwords and other such tech information. This needs to be handwritten on a page
with the persons name at the top and kept in a safe place “locked” with an additional copy at
your accountant’s and/or lawyer’s office. UPDATE REGULARLY.
Contract Workers and Outside Contractors
Name, and other information What is their job description? Include all responsibilities. What are
the terms of their contract? What special knowledge and information about the company do they
have? This includes relationships, proprietary information they maintain, and of course computer
passwords and other access codes
Professional Services Lawyer Accountant and/or Bookkeeper (taxes, payroll, etc.) Financial
Institutions Insurance Investment Advisors Credit Card Processing Collections Human
Resources Media Specialists
Consultants (including Business Valuator) IT Computer Hardware and Software Repair IT for Internet presence including social media, domain registration and hosting
Daily, Monthly and Yearly Tasks
Regarding payments and other financial issues Full details required Details
Never store sensitive information into software programs that could get hacked. Have printed copies that you have control of at your lawyer or accountant’s office. An inexpensive computer and backup drive in your safe might be prudent.
Blue Collar Services
Provide complete details Security Plumber Electrician Janitorial Landscaping Delivery Other
4. Licenses to Operate
City business license Other geographic licenses Association and industry certifications and
licensing
5.Business Suppliers
Full list and documentation 6. Clients
Full list in order of importance and/or most profitable
7. Office Procedures
Opening and closing procedures Alarm system passwords and/or codes (need to be handwritten
and locked somewhere secure)
8. Business Procedures
Staffing Training Order processing and sales procedures Call comes in, document what happens
after that Customer service procedures Shipping and receiving
9. Equipment
List each piece Where are the keys? Who knows how to operate it? Who repairs it? Any quirks?
Insurance? Registration? Permits? Lease information
10. Office Equipment
List each piece Computers Passwords (handwritten and stored in a secure location)
Maintenance Where you purchase the consumables Lease information
11. Emergency Procedures
Full details including muster stations In case of fire In case of an earthquake
Conclusion
This book should have helped you to understand that it is
mostly the intangibles in a business that determine the
value. Depending upon the reason or purpose that caused
you to read this book, you will determine how you utilize the
information. If you are a business owner, this book will have given
you some clarity on what is valuable in your own business. Just by
understanding this you will know where you should invest your
time.
If you put some time into developing an operation manual from the
free template in Section 3, you are likely to be gaining tens
of thousands of dollars (or more) in value from documenting all
these things.
Lawyers, lenders, and accountants will know which clients will
benefit the most from reading this book and point them in the right
direction.
Divorce litigants and others in dispute will better understand their
own situation and be better able to make decisions going forward.
I cannot teach wisdom.
I cannot teach experience.
If, however, you are stable, motivated and feel you have enough
wisdom and experience to qualify, I am open to Selling a License and training associates
anywhere in the world.
Firm quote today.
CALL NOW 877 355 8004
VALUATION EXPERIENCE - ERIC JORDAN
CPPA - Recent Experience
My name is Eric Jordan. I am a CPPA which means Canadian Personal Property Appraiser. There are over 700 CPPA's across Canada. The Canadian Personal Property Appraisal Group provides members a proper legal structure with which to do valuations. I specialize in intellectual property in small businesses. This is a niche that few outside of the Venture Capital industry understand. Experience is the key ingredient in my credentials and my experience is extensive, relevant and when combined with my proprietary system I describe in the book "25 Factors Affecting Business Valuation" allows me to deliver what many believe to be the most accurate small Business Valuation available in Canada today. Assignments below are all from (2020) and they range from $100K to more than $50M
Note that in all of the above my ability to measure the “intangible assets” was key to finding the value that was confirmed to be correct.
EARLY LESSONS IN VALUATION
I was born in 1952 in Southwestern Manitoba. Like many other boys that were born on a farm / ranch I was a member of the local 4H beef club. The Canadian 4-H motto is "Learn To Do By Doing". It was at the age of 12 to 15 that I received my first training in valuing or judging. My 4-H group provided a lot of training in judging cattle. Like business valuation the process involved many factors. I enjoyed this and did well at the judging competitions.
I got started in the construction industry at 16 learning about steel stud framing, drywall, drywall taping, acoustical tile, and other types of ceilings. I took training as an apprentice and at 19 years-old I was a sub trade foreman at the construction of J H Bruns Collegiate in Winnipeg Manitoba.
LEARNING TO LISTEN
I soon started my own business doing textured ceilings. I learned a lot of important lessons while running this business. The most important was learning to listen. I did specialized work. I would texture the ceilings in houses that were occupied as I had perfected a way to do this while protecting all the furniture and accessories in an effective and efficient manner. I would book work over the phone and set up a route that could take me from Manitoba to Alberta and back. One did not want to arrive at a house and find the work was impossible to do or that the owner was not likely to pay on completion. I was successful in that business. The key was to listen, listen, and listen. Asking the right questions and then listening carefully was critical to finding the correct information. Hearing the nuances became easy after a while. This is a very useful tool I use to this day while seeking information in the valuation process.
INTRODUCTION TO SMALL BUSINESSES
It was at about this time I got involved with the advertising business. I did advertising placemats across South Western Manitoba and Saskatchewan. If any of you are old enough and frequented Buddy's Steak Ranch on Albert Street in Regina, SK or Aunt Sarah's Restaurant in Brandon MB. you may remember my placemats with a character called "Prairie Tom" in the middle surrounded by squares of advertising.
I don't believe my creation died when I quit doing the placemats. A short time after that "Coffee News" publication started in Winnipeg, Manitoba and the character they use to this day looks amazingly similar to "Prairie Tom". I believe I at least partially inspired the creation of that very successful publication and I am very happy for that. The placemat advertising business put me into hundreds if not thousands of small businesses where I got to deal with the owners. Great experience for my future valuation career as my eyes were beginning to open as to what really happened in a small business. .
AUCTION BUSINESS - Learning to See
In about the same time period I had a mentor Charlie Salfries who was sure that I should be in the auction business. I ended up doing about six auction sales in 1980 and held an auction license in Brandon Manitoba. This was a real learning experience for understanding value and being able to see and feel how live events work. Nobody understands value better than auctioneers. When the Canadian Personal Property Appraisers Group started in 1995 most of the first members were auctioneers from across Canada.
ONE ON ONE - With Hundreds of Small Business Owners.
The next business I got involved with was the movie business where I owned several rental stores and operated a movie broker business. In those days movies were a sideline to almost any kind of small business. I walked into thousands of small businesses and introduced myself. Hundreds ended up dealing with me. During this two to four hour process of dealing with the client on these video tapes, I really started to learn about what happened in a small business. Not all of the money went into the till. These business owners were happy to have someone to confide in. They would tell me amazing ways they saved on paying tax and all sorts of quirks about their particular business and industry. My experience extended to the US, as I purchased movies from small businesses then leased and sold these movies back into Canada. From this experience I could now understand what really happens on the ground in a small business as compared to what shows in the financials. This was invaluable one on one experiences with hundreds of different business owners across all sorts of industries. One can never learn these things in academia and I have a real edge on those who don't have this type of experience, most especially those situations where bookkeeping is suspect or non existent.
PIN.CA - HELPING BUSINESS OWNERS ADVERTISE FOR BUYERS
Some video clients would tell me that they were selling so I should not leave movies with them as their business would be sold and gone by the time I was back in three months. My experience at that time suggested otherwise and I would ask them to just call me if they sold and leave the movies with a neighbouring business in the town. Two years later the business would often close down "unsold" and there would be an empty building for sale.
This is where I got the idea to set up an Internet showroom or catalogue of businesses for sale on the Internet. I was correct and the Pin.ca website has been successful helping business owners to find buyers for the past twenty years.
VALUATION
Working with hundreds of small businesses, advertising to the market place I got to understand about valuation. I had a client who was a Chartered Accountant who helped me to understand from the accounting industry viewpoint, how they look at valuing a business. I knew however that that was not the whole story. At about the same time I had a client who was a Resume Broker. He had a formula for getting inside his clients head and finding out what intellectual property they retained in their brain. He would write that into a resume and these people would easily find a job. I knew that same thing would work with a small business. A friend of mine Reid Nunn had spent a long time in the insurance industry and he taught me a lot about risk. Between those three things I was able to start to put the pieces together for doing an accurate business valuation and that was the beginning of the 25 Factors Affecting Business Valuation.
BITCOIN AND INTANGIBLE ASSETS
By 2013 I had my valuation process fairly well in place had spent thousands of hours researching intangible assets which I felt were the most valuable part of a small business. I was doing business valuations and I decided to test my process on the toughest intangible asset in the world "Bitcoin"
I purchased 78 Bitcoins and proceeded to test.
My process led me to believe the key element in Bitcoin was the "blockchain" and for the reason of the blockchain, I deemed that Bitcoin would have value in the future. I predicted $500 Bitcoin, $1,000 Bitcoin and the real possibility of much higher. I think everyone can agree my analysis was correct and Blockchain has proven valuable.
CPPA CERTIFICATION (National Accreditation)
This brings us to 2015. I had a formula and a lot of experience but I lacked the legal structure to present a business valuation to a court. That is when I reached out to the Canadian Personal Property Appraisers Group in London, Ontario. I got certified through them and became a CPPA. Now I had a proper legal structure for doing my business valuations. Canadian Personal Property Appraisers Group teaches you the legal structure you must use to produce a valid Valuation. The CPPA certificate for me now is really a moot point as my experience and the legal structure I use stand on their own.
BOOK AND FREE PDF
In 2017 I wrote the book "25 Factors Affecting Business Valuation" which gives a good overview of my proprietary process. It doesn't teach you how to do a business valuation but it does let you know what must be measured.
Send an email to pindotca@gmail.com and I will be happy to send you a free PDF of my book.
INCOME VALUATION
For those people who need Income Valuations done, I offer my experience dealing with thousands of small business owners across Canada. Hundreds of these were close business relationships forged over time. This combined with my credentials should put me at the top of any list for an INCOME VALUATION.
Experience is the key factor. I have done hundreds of business valuations and my valuations have been accepted by CRA and Court of Queen's Bench. Numerous divorce proceedings across Canada have been concluded using my valuations, and filed with the courts. (including Quebec)
Firm quote today.
CALL NOW 877 355 8004
CPPA is the designation given to those who have met the requirements of The Canadian Personal
Property Appraisers Group. CPPAG is a National Appraisal Organization founded in 1995 and is comprised of a
network of 700 Accredited Appraisers from across Canada. CPPAG provides personal property appraisal training
and accreditation to its members who come from diverse backgrounds including: auctioneers, bailiffs,
insurance industry, antique and equipment dealers, accounting and financial institutions and lawyers.
Because they must be USPAP compliant and follow the universally accepted appraisal format; CPPAG a
ccredited members are the definitive resource for determining the value of hard assets such as
leasehold improvements, equipment, tools and inventory. CPPAG Accredited Appraisers have been long
relied upon by courts to settle values in regards to insurance claims, divorce settlements, and other legal
issues.www.CPPAG.COM. Fairness Opinions are also within the scope of experienced CPPA designates. In addition
to accounting, information designates have practical knowledge and understanding of both tangible and intangible
assets. Some CPPAG Accredited Appraisers specialize in Business Valuation and have special skills
at valuation of intangible assets such as business cash flows, distribution networks, client lists
and relationships, employees, documentation and processes and procedures. Experience is key.
You will find my name under Business Valuations on the www.CPPAG.COM website.
CPPA EXPERIENCE RECOGNIZED BY COURTS
One can go to www.canlii.org and in the Document Text search field enter
"Canadian Personal Property Appraisers Group" When you hit the search button
you should find at least 8 cases you can review.
COURT OF QUEEN'S BENCH OF ALBERTA
COURT FILE NUMBER 1601-15411
DATE ON WHICH ORDER WAS PRONOUNCED - APRIL 7, 2017
LOCATION WHERE ORDER WAS PRONOUNCED - CALGARY
NAME OF THE JUSTICE WHO MADE THE ORDER - JUSTICE A. D. MACLEOD
TRUE COPY WAS MADE OF THE ORIGINAL ORDER ON MAY 9, 2017 FILE NO 8452
JUDGES VALUE EXPERIENCE
https://cbvinstitute.com/wp-content/uploads/2010/10/Credibility-Under-Scrutiny.pdf
(March 2020)
Thank you Eric for your great work.
It was pleasant to work with you and I was happy with the result. I would definitely recommend you to everyone who is looking to get business valuation. Thank you again for everything. Business owner/designer Masha S.
Recent Valuation of $17 Million on a manufacturing company with a regionally known brand was the exact price the owner was offered. Accuracy at it's finest.
A well known Lawyer was the executor to a rather large estate that had properties spread across Canada and the globe. These were mainly residential properties with some commercial property and one commercial property with an operating business. The executor ordered and received a separate appraisal on each of the different properties from certified appraisers near where the properties were located. Now the lawyer executor wanted to know the value of the whole group of properties together now that he had the individual appraisals. He hired the top appraiser from the most prestigious appraisal firm in his area at high cost. He also hired me to do the same work using the same information at a cost of $4,800. The two multi Million Dollar Valuation Reports came back at within 1% of each other in late fall of 2019.
Fast forward to the spring of 2020. The coronavirus combined with the oil price collapse in Canada had changed values drastically. My proprietary valuation system of “25 Factors Affecting Business Valuation” allowed me to easily go in and revise the 2021 Valuation, and at a very low cost.
Eric was wonderful to deal with. He was very knowledgeable on the topic of business valuations and took the time to listen to my fears and concerns. He asked me questions and gave me sound advice that helped me feel at peace. Eric was honest and wise and I would fully trust his experience. Although Eric didn't need to perform a business valuation for me at this time he listened to my concerns and was honest about the services he offered. Eric also talked to me for a long time getting a scope for my situation and didn't charge me at all for what services he did provide. Thanks Eric. -Amber.
ERA Law
As a lawyer, accurate business and personal property appraisals are often essential to resolve negotiations and formal disputes. I am familiar with the work of Eric Jordan, CPPA, and I would recommend his services to anyone seeking a valuation to resolve a dispute or to purchase or sell a business. -Mark W. Hundleby,Barrister and Solicitor
Just a quick note to tell you that CRA appears to have accepted the evaluation you did regarding my shares, having sent us a "balance owing" letter of $00.00.
We are relieved to have the whole ordeal over with. Thanks so much for all your help and expertise.-Nadine and Fiona
TSX - Fair Value Report
When a small publicly traded TSX listed company needed a report on fair value to meet TSX requirements they turned to Eric Jordan, CPPA. You can view the opinion on fair value report as part of the documentation for the Securities Commission.
CrossFit Gym
When Evan Lindsay needed to understand the value of his gym he worked with Eric Jordan. (LINK PENDING) "Working with Eric was a productive experience. He listened, was direct and was transparent, providing great feedback on my business. The final report was professional and conveyed the value that my company had built for the last 5 years. I look forward to working with Eric again in the future and highly recommend his services." -Evan Lindsay, Saskpro CrossFit.
Alberta Treasury Branch
Alberta Treasury Branch needed a business valuation before they could provide Wendy Coombs a business loan for the purchase of another medical clinic business in Calgary. (LINK PENDING) "We recently applied for a bank loan to finance the acquisition of a medical clinic in Calgary Alberta. We have been customers of Alberta Treasury Branch for 18 years and despite having many prior business loans, for the first time ever they required a Business Valuation completed by an experienced business evaluator. Banks are becoming even more risk-averse and the requirements for financing increase with respect to their due diligence. We presented Eric Jordan, CPPA. The Alberta Treasury Branch agreed Eric had the experience they were looking for in an evaluator. His business valuation was very thorough and not only did it get us the financing we needed, but it was also very useful in facilitating the negotiations and securing a fair price for our business purchase." -Wendy Coombs CEO, VP Business Development Momentum Health.
When a chemical
manufacturing company in Georgia wanted to know the value of what was
being spun off into a subsidiary, they got their valuation from Eric Jordan. Six
months later they came back wanting the whole company evaluated!
(Contact name available to qualified potential client.)
When three
Korean Canadian Engineers wanted to borrow Ten Million Dollars from a group in
Korea, they got an evaluation from Eric Jordan.
(contact name available to qualified potential client.)
We take
small assignments too, for example:
When the owners of a small computer company in Florida
needed valuation for a divorce situation (less than $50,000 company) we were
able to help them.
(Name available to qualified potential client.)
PNP -
PROVINCIAL NOMINEE PROGRAM (We do many.)
This recent
included two PNP evaluations for Province of BC.
When the Canadian
franchisee of a worldwide educational company was considering selling and wanted
to establish price they came to Eric Jordan.
(Name released to qualified
person subject to client approval on an individual basis.)
Firm quote today.
CALL NOW 877 355 8004
MORE CLIENTS:
Multi Million Dollar Distribution Business
- Valuation for purpose of sale.
Plumbing and Gas Business
- Valuation for
purpose of divorce proceedings.
Multi Million Dollar Eco Tour Business
-
Valuation for purpose of expansion loan.
Law Practice
- Valuation for
purpose of sale.
Lawn and Yard Maintenance business
- Valuation for purpose
of divorce proceedings.
Art Studio Franchise
- Valuation for accounting
purposes and CRA requirements.
Plumbing Business
- Valuation for purpose of
divorce proceedings.
Irrigation and Snow Removal Business
- Valuation for
purpose of divorce proceedings.
Large Retail Bakery
- Valuation for
purpose of sale to employee over 5 years.
Software Distribution rights in
Canada
- For Australian Parent Company (Agency Dispute.)
Janitorial Supply
Business
- Valuation for purpose of partnership dispute.
Tree Pruning and
Lawn Business
- Valuation for purpose of sale.
Battery Distribution
Business
- Valuation for purpose of sale.
Software Testing and Quality Assurance Company
- Valuation for purpose of partnership dispute.
Blind Manufacturing and Installation Company
- Valuation for purpose of legal action in partnership dispute.
This went to court on May 27, 2016 and resulted in our client receiving over 80% of the amount he sued for. Client is available as a reference.
Classic Car Renovation Business
- Valuation for multi-million dollar lawsuit in Florida launched by Canadian partners.
Dance Studio
- Valuation for purpose of establishing value for pending sale.
Cross fit GYM
- Valuation for purpose of establishing a viable price for buyer to offer.
Jim’s Burger Location in US
- Valuation for purpose of divorce proceeding.
Two Wholesale Bakeries
- purpose of the valuation was to find values so the companies could merge.
Sign Manufacturing Business
- Valuation for purpose of a minority shareholder leaving company.
Landscaping and Excavating Company
- Valuation for purpose of divorce.
Day Care Facility
- Valuation to support litigation and negotiation for damages inflicted by City in zoning error.
Accommodation Business
- Valuation for purpose of sale.
Smoker Operation (8 pigs at a time in size)
- Valuation for tax purposes.
Flooring Business
- Valuation for purpose of sale.
Retail Wine Business (Franchise concept)
- Valuation for purpose of sale.
Prop Business
- Valuation for purpose of
partnership buyout.
Computer Retail
- Valuation for purpose of potential purchase.
Music Composer Business
(original soundtracks for documentary movies and videos)
- Valuation for purpose of divorce proceedings.
Two Pharmacy Locations
- Valuation for purpose of sale consideration.
Luxury Bed and Breakfast combined with Events Business
- Valuation for the purpose of sale.
Pool Building Company
- Valuation for purpose of sale to family.
Automotive Related Business
- Valuation for purpose of sale.
Specialized Manufacturing Firm within Printing Industry
- Valuation necessary as someone expressed interest in purchase.
Daycare
- Valuation for purpose of possible sale.
(Interested Purchaser came forward)
Focused Builder
- Valuation for purpose of establishing value for employee buy in.
Software Maintenance Contractors
- Valuation for purpose of possible merger. (many millions of dollars)
Chiropractic Practice
- Valuation for purpose of buy in.
Wholesale Food Business
- Valuation for purpose of settling partnership dispute.
Accounting Firm
- Valuation for purpose of divorce.
Call Centre
- Valuation for internal purposes.
Hair Salon
- Valuation for purpose of employee buy in.
Convenience Store and Gas
- Valuation for purpose of lease dispute.
Specialized Builder of Restaurants
- Valuation for purpose of employee buy in.
Wholesale Food Manufacturing and Distribution
- Valuation for purpose of partnership buyout.
Retail Sporting Goods Franchise
- Valuation for purpose of purchase.
Diesel Repair Shop
- Valuation for purpose of partnership dispute.
Cellular Repair Company
- Valuation for purpose of internal planning.
Roofing Company
- Valuation for purpose of partnership consideration.
Upscale Personal Services Company
- Valuation for purpose of internal planning.
Specialized Wheel Business
- Valuation for purpose of sale.
WIN IN COURT
Need a Bulletproof Business Valuation?
"I greatly appreciate the work Eric did on the Valuation of my company. It stood up in
court. (April 2017) The Judge soundly admonished the Chartered Business Valuator who
tried to contradict Eric's valuation. If someone needs confirmation and wants to speak
to me, Eric has permission to release my number." (Antoine)
Second Opinion on a Questionable Valuation?
"We find that most small business valuators concentrate on Asset, Market, and Income approaches developed in the 1970's.
These are generally easy to defeat in 2021 as most businesses are now made up of 75% or more in "intangible assets"
these valuators neglect, or have no means, to properly measure.
Accounting and Business Valuation are two different things.
Experience taught me the only people who can effectively be trained in valuation using the 25 Factors Affecting Business Valuation are those with 10 or more years experience in running their own small business.DISPUTED SITUATIONS DIVORCE AND OTHER PARTNERSHIP DISPUTES
PERHAPS THE SYSTEM IS FAILING YOU?
I can’t force any person, group, or body to believe or accept my report; that is the job for your lawyer.
Other lawyers have been successful and you need to find one to fight for you and the truth;
even if the truth is not what some groups in society want to believe. - Eric Jordan CPPA
CANADIAN PERSONAL PROPERTY APPRAISER
You are changing something about your corporate structure and you need to have a valuation so you can show Canada Revenue Agency or some other tax authority the market value of your company at a certain date. These can be challenging. Things like minority shareholder status within an agreement might make something that should be valuable worth half or less. I have had clients in the past that were in this situation and CRA accepted our methodology.
Just a quick note to tell you that CRA appears to have accepted the evaluation you did regarding my shares, having sent us a "balance owing" letter of $0.00.
We are relieved to have the whole ordeal over with. Thanks so much for all your help and expertise.-Nadine and Fiona (More than 5 years ago)
There is a big difference between income for income tax purposes and and income within a valuation to determine the normalized net income for a business for loan or sale purposes or even dealing with CRA when establishing fair market value for a company freeze. A freeze legally locks a business’s current value at a specific amount for preferred share status.
Often in Divorce Situations the real income is being manipulated for tax purposes. The couple or business owner would likely have been paying the least tax possible and things would have been done for tax purposes. This is where we do normalization to find the true value as if the company was doing a sale or share freeze and everything has to be done at fair market without regard for tax consequences.
You need to get the income valuation done first then find a lawyer who is willing to fight for you otherwise you may end up with a seriously wrong number.
Three partners have been working together for 7 years and now someone has to leave. This is a huge responsibility to find that correct measurement of value as it affects a lot of people’s lives. This allows me to really get into it and use all my knowledge and years of experience to find the right answer. Yes it sometimes keeps me up at night, but the end result is very satisfying for me.
My definition of net profit and that of the real estate agents, brokers, and business sellers is generally quite different. This is where a buyer needs to know about “normalization”. There is a good definition of Normalization at this link.
Normalization is about making sure all the payments, salaries, wages, and income are at fair market.
Often business owners own more than one business so it is essential to know the ownership structure and what transactions were made that were not at arms length. A business may appear to be making a lot of money but the expenses and income can be easily manipulated. Rent, Salaries, Wages, Inventory, Equipment, Travel, Entertainment, Fuel, Internet, Phone and Home Office expenses all fit in this category. Balance Sheet and the Income Statement both need to be normalized. Sellers and brokers are famous for trying to say items were a one time expense; as if there were no risks involved in running a business. There are always unforeseen expenses. Many years ago a young fellow in Victoria, BC bought a muffin business that he thought was profitable. Unknown to the buyer at the time; the owner was running a cake business and was including that income into that of the muffin shop. Of course after the ownership change and the cake business income was no longer included, the muffin business was a money loser. One must be very careful.
Reasons for a Business Valuation other than Profit:
Example 1: Three partners have been working together for 7 years and now someone has to leave. This is a huge responsibility to find that correct measurement of value as it affects a lot of people’s lives. This allows me to really get into it and use all my knowledge and years of experience to find the right answer. Yes it sometimes keeps me up at night, but the end result is very satisfying for me.
Example 2:You are in a divorce situation and feel you are getting beat up. If my experience and knowledge are going to be able to make a big difference in your life, then this is something I could be interested in doing.
Example 3: You are considering buying a business. This is very often a huge challenge and my 30 plus years of experience in dealing with small business owners helps me to determine who is being honest, who’s information we might choose not to trust, and why. Again this work gives me the feeling of satisfaction when completed.
Firm quote today.
CALL NOW 877 355 8004
How Financials Can Be Deceiving:
(This is the kind of practical solution offered by our system.)
Accounting for tax purposes is totally different than interpreting financial statements for
Business Valuation Purposes. Let us give you just one example: (Think Partnership or Divorce)
For tax purposes R&D is an expense in the year the R&D occured. For the purpose of an accurate
valuation the R&D should be amortized over more appropriate period. R&D may be in fact cummulative.
HUGE DIFFERENCE
The financials must be normalized to reflect proper treatment of R&D. If we didn't do this a
company could spend 95% (or all) of the profit on R&D and might successfully claim the company
to be worth very little for a short period of time. Perhaps not fraud but certainly manipulation,
depending upon the purpose. (Divorce or other partnership)
Business Valuator Services Available Across Canada 1 877-355-8004
JUDGES - LAWYERS - PARTNERS IN DIVORCE PROCEEDINGS
PARTNERS IN BUSINESS DISPUTES - BUSINESS BUYERS BUSINESS SELLERS - CANADA REVENUE AGENCY
Bring the judge a valuation based on experience and logic.
WHAT KIND OF BUSINESS VALUATION DO YOU NEED?
FAIR MARKET VALUE - ONGOING OPERATION
FAIR MARKET VALUE - ASSETS IN PLACE BUT NOT OPERATING
ORDERLY LIQUIDATION
ORDERLY LIQUIDATION VALUE OVER TWO TO FOUR MONTHS
INSURANCE VALUATION
Are you insured for replacement costs of rebuilding a business after a loss including Intangible Assets? Have your insurer acknowledge and accept valuation prior to buying insurance.
Value of recruitment and training of a group of employees to the position of cohesively working together as they were prior to the point of interruption, damage or loss.
Value of rebuilding client base to where it was prior to the point of interruption, damage or loss.
Value of reimplementation of systems and procedures in place prior to the point of interruption, damage or loss.
LOANS:
Banks are losing a lot of business these days to lenders who understand intangible assets. Define the value of your intangible assets. If your bank is not considering the value of your clearly defined intangibles you need to find a new lender who is better educated in your business model.
HOW TO ESTABLISH VALUE FOR TAX, SALE, OR OTHER LEGAL ISSUES.
HELPING BUYERS AND SELLERS UNDERSTAND VALUE
SELLERS:
Have a defense with a list of reasons to support asking price.
BUYERS:
Understand what you are buying and why the price is fair or not.
GROWTH:
Understand where the value is in your business so you can focus your growth on areas that are increasing in value.
VALUE FOR DIVORCE:
You and your lawyer may want an inexpensive insight to help you negotiate.
INSURANCE NEEDS:
How much insurance do you really need?
TAX NEEDS:
Produce a list of reasons to support a position.
LOANS:
Present a clear picture to your lender of the assets your company owns; you may need clear identification of intellectual property and list of supporting reasons. You need to prove that hard assets represent only part of your value.
VALUATION EXPLAINED:
People assume a buyer will be able to understand what they are selling and how profitable your business is, based upon balance sheets and profit and loss statements. THEY DON'T. Most people do not understand financial documents. They may think from looking at your statements that you are not making much money. Financial documents and tax returns are (or should be) prepared to show your business making the least amount of money possible; thereby enabling you to pay the least amount of tax possible. NOT EXACTLY THE SORT OF THING THAT WILL IMPRESS A BUYER WHO DOES NOT UNDERSTAND.
This is why MOST PEOPLE need a common sense VALUATION. We take the information from your financials and find the TRUE NORMALIZED NET INCOME OF YOUR BUSINESS to show a prospective buyer what is really happening in your business when the tax considerations are taken away.
All of this is done in a way that ordinary people can understand; ordinary people like the buyer, the buyer's spouse, a financial backer or a banker.
Other Value Reports include a Cheese Factory in Canada, 2 Bagel Stores in New York near Manhattan and an Excavating Business in the Canadian oilfields.
How to value an Edmonton business; the valuation or appraisal is a process. Once we have all of the information we need, via the intake conference, your valuation report will be delivered to you in approximately one week. We refer to our evaluation as a Value Statement.
WE COME AT THIS FROM FOUR DISTINCT VIEWPOINTS:
EXISTING ACCOUNTING:
The view from an accounting perspective; relying on the the numbers created by the clients' existing accountant, then finding the real "normalized net income" through a proprietary process.
RISK:
Looking from the insurance viewpoint and assessing risk to buyer.
HUMAN CAPITAL:
From the point of view of a resume broker; assessing the value of the
human capital involved in the business.
INTELLECTUAL PROPERTY AND PROPRIETARY PROCESSES:
Understanding, assessing and estimating the intellectual property and proprietary knowledge that is transferred with the business. Change of ownership and management does matter.
INTAKE CONFERENCE:
This is a 2 to 3 hour conference call that can include as many stakeholders as required.
As no two businesses are the same, the questions will vary.
Below is a list of some of the areas that we will cover.
(1) Why: What is the purpose of the valuation?
(2) Who: Value with whom owning and managing the business?
(3) Normalized Net Income: I must understand what questions to ask to be able to determine the real 'Normalized Net Income.' This figure is seldom what you see in your year-end accounting, which is generally calculated to determine the lowest amount of tax legally payable.
(4) Leasehold Improvements: These need to be covered regardless of whether the building is leased or owned.
It is important that the right questions are asked in any comprehensive appraisal.
(5) Hard Assets: Determining fair market value.
Book value means nothing if we want to know the true value of the business.
(6) Intellectual Property: Copyright, Proprietary Processes, Business Operation Manuals. These are your operating manuals; the step by step instructions on how to run your business and how to train others to operate your business. This greatly affects value; positively if it you have them and negatively if you don�t have them, and much more negative if it would not be possible for you to have a practical manual that would allow for your business to continue if you were unable to function.
(7) Value of Cash Flow: This is calculated by finding the normalized net income then multiplying it by a ratio determined by risk, opportunity, and the intellectual property affecting the means to produce.
(8) Soft Assets: Do you have intellectual property that has fair market cash value outside of your business?
(9) Risk: What are the possible risks to your business?
No appraisal can be completed without properly understanding risk.
As you can well understand, no computer program, gross sales or other rule of thumb guessing techniques are going to be helpful for you in determining the real value of your business. In fact, these techniques could harm you. Valuation and appraisal is our full time business. We do a lot of business valuations.
Firm quote today.
CALL NOW 877 355 8004
Valuation for Divorce And Disputes Valuation for Tax Purposes Income Valuation