Types of Business Valuations

Sunbelt of UK suggests five types of professional third-party business valuations. Business valuations play an important role in many situations from selling a business, partner buy-outs, M&A, financing, litigation, divorce settlements, and estate planning. Contact us for a free consultation today!

Here is a summary of various types of business valuations available:

Letter of Opinion
The Letter of Opinion is a restricted-use business valuation intended for small companies with sales less than $250,000. The report is approximately eleven pages and provides only a brief synopsis of how the business valuation conclusion was determined. The basis of this business valuation is a market comparison with like companies within an industry.

Value Analysis
The Value Analysis is a restricted-use business valuation designed specifically for the “Main Street” business with sales of $1,000,000 or less. The report is intended for “asset sale, financial buyers” and is approximately 40 pages providing only a summary of how the valuation conclusion was determined. The basis of this business valuation is discretionary cash flow, since most Main Street businesses are bought and sold on a multiple of cash flow. The value considers primarily historical and current financial performance and very little time is spent with the balance sheet.

Formal Business Valuation
The Limited Formal Valuation is a restricted-use business valuation intended for the standard small business with sales between $1,000,000 and $5,000,000. The report is intended for “asset sale, financial buyers” and is approximately 70 pages providing a detailed review of all aspects that were considered in determining the final valuation conclusion. The bulk of the report is financial analysis and the business valuation conclusion is supported on much more detail. In addition to reviewing the company’s historical and projected earnings, the report also contains a detailed review of the balance sheet.

M&A Valuation
The Merger & Acquisition Valuation is a comprehensive business valuation for transactional purposes and is developed in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP). This is a stock valuation and is intended for the middle market business with annual revenues in excess of $5,000,000, businesses that are expected to sell for more than $1,000,000, strategic acquisitions of niche businesses, and generally any business with significant growth expected in the future. The basis of the valuation is focused on future earnings and the selection of guideline companies comes from both the private and public markets. This report is a completely customized report and the number of pages can range from 30 to 200 depending on the information that is used to support the conclusion.

IRS Revenue Ruling 59-60
A USPAP-governed valuation developed for litigation focusing on US Court Reviews, Cited Court Precedents, and in-depth analysis and research of minority and marketability discounts. Intended for estate tax, gift tax, ESOPs, divorce, and any situation requiring litigation. This type of business valuation is normally used when the value of the stock is in question (minority or majority interest).