1 Introduction to Business Valuations SBA – February 14, 2019 Presented by: Neal Patel, CBA, CVA Ronald Rudich, CPA/ABV/CFF Neal Patel, CBA, CVA Neal Patel, CBA, CVA is the Principal of Reliant Business Valuation, a business valuation and equipment appraisal firm specialized in SBA related valuations nationwide. Reliant works with over 150 of the nation’s top SBA lenders. Ronald D. Rudich, CPA/ABV/CFF Ron is the Principal at Business Valuation Group, LLC, a boutique valuation firm specializing in valuations of closely held companies, forensic accounting, strategic business planning, budget and forecasting services, business consulting, business loss computations, litigation support, and court testimony.
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Introduction to Business ValuationsSBA – February 14, 2019
Presented by:
Neal Patel, CBA, CVARonald Rudich, CPA/ABV/CFF
Neal Patel, CBA, CVANeal Patel, CBA, CVA is the Principal of ReliantBusiness Valuation, a business valuation andequipment appraisal firm specialized in SBA relatedvaluations nationwide. Reliant works with over 150 ofthe nation’s top SBA lenders.
Ronald D. Rudich, CPA/ABV/CFFRon is the Principal at Business Valuation Group,LLC, a boutique valuation firm specializing invaluations of closely held companies, forensicaccounting, strategic business planning, budget andforecasting services, business consulting, business losscomputations, litigation support, and court testimony.
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Topics CoveredTopics Covered
SOP Guidelines
Intangible Assets / Deal Structure
Cash Flow Analysis
Determine a Reasonable Value
When is a Third Party Valuation Required?(Non Special Purpose Property)
If the amount being financed (including any 7(a), 504,seller or other financing) minus the appraised value ofreal estate and/or equipment is greater than $250,000,or..
If there is a close relationship between the buyer andseller (for example, transactions between familymembers or business partners), or..
If the lender’s internal policies and procedures requirean independent business appraisal from a qualifiedsource
Note: no mention of goodwill!
Note: employee / employer also included!
Note: every change of ownership loan requires a business appraisal !
(e) Accredited Valuation Analyst (AVA)* *(the AVA designation was merged with CVA and dropped)
NOTE: CPA alone is no longer a “qualified source”
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When does a valuation expire?
Equipment Appraisal: 12 months of the application
Real Estate Appraisal: 12 months of application of guaranty
Business valuation: SOP remains silent, however confirmed theywant an accurate value of the current business. 12 monthsshould be max, but it’s prudent to review recent financials andcompare to appraiser’s projections (or review deal structure)
A Special Purpose Property is definedin the SOP as "a limited-market propertywith a unique physical design, specialconstruction materials, or a layout thatrestricts its utility to the specific use forwhich it was built."
“…the lender must obtain an independent business valuation performed by a Certified General Real Property Appraiser.“ Additionally, The business valuation must allocate separate values to the
individual components of the transaction including land, building, equipment and intangible assets.
The Certified General Real Property Appraiser must have completed no less than four going concern appraisals of equivalent special use property as the property being appraised, within the last 36 months, as identified in the qualifications portion of the Appraisal Report.
Each business valuation assignment under this section must be... in compliance with current USPAP guidelines.
Alert: SOP 50 10 5(J) pg. 174(effective Jan 1, 2018)
Minimum equity injection requirements for certain Applicants or loans:(i) Resulting in a new owner (complete change of
ownership): SBA considers an equity injection of at least 10 percent of the total project costs* to be necessary for such change of ownership transactions.
(ii) Seller debt may not be considered as part of the equity injection unless it is on full standby for the life of the SBA loan and it does not exceed half of the required equity injection.
*Project costs: all costs required to complete the change of ownership, regardless of the source of funds
Alert: SOP 50 10 5(J) pg. 134(effective Jan 1, 2018)
NEW: If any of the loan proceeds will beused to finance intangible assets, theamount must be specifically identified in theUse of Proceeds section of the applicationand the Authorization.
The value of the intangible assets isdetermined by...the value of the businessas identified in the business valuationminus the sum of the working capital assetsand the fixed assets being purchased.
In other words:
intangible assets =
business value – (working capital* + fixed assets)
*Working Capital = Current Assets – Current Liabilities
7(a) Loan Program – Equipment Appraisals (pg. 186-187)
Collateral Requirements (loans over $350,000):
For collateral purposes, the SBA has intentionally separated machinery and equipment from furniture and fixtures, as highlighted in bold below. New machinery and equipment (excluding furniture and fixtures)
may be valued at 75% of price minus any prior liens for the calculation of “fully-secured”;
Used or existing machinery and equipment (excluding furniture and fixtures) may be valued at 50% of Net Book Value or 80% with [sic] an Orderly Liquidation Appraisal minus any prior liens for the calculation of “fully-secured.”
Furniture and Fixtures may be valued at 10% of Net Book Value or appraised value. (SBA has confirmed “appraised value” is also Orderly Liquidation)
Equipment appraisers should now separately allocate aggregate values of machinery/equipment and furniture/fixtures when providing the lender with Fair Market and Orderly Liquidation Values.
Price / Sales multiple Apply a multiple to the sales
• The Price / Sales approach does not take into consideration many variable expenses that can impact the cash flow (rent, COGS, salaries, etc.), so this multiple is relied upon infrequently.