What Do All Those Letters Mean?

June 4, 2019

By Shawn Hyde, International Society of Business Appraisers (ISBA) –

Piggy BankLots of people have a series of letters behind their names. These are designations that indicate specific training and education. There are several different sets of letters from different organizations that one can obtain in the field of business valuation. The following describes a little about each of them and their most commonly awarded designations.

Business valuation, as an industry, began being organized in the United States in 1978, with the Institute of Business Appraisers (IBA) and a man named Ray Miles. Prior to then, practitioners were valuing businesses, but there were no collections of authoritative texts or industry experts. In the early years of this industry, certain stars began to shine and publish books to share their expertise with the rest of us. I am speaking of names such as Shannon Pratt, Jay Fishman, Robert Reilly, Robert Schweihs, Gary Trugman, and Chris Mercer. This is by no means an exhaustive list, but just those whose names are on the spines of most of the books in my library. (more…)

What Is My Business Worth?

April 16, 2019

By Shawn Hyde, International Society of Business Appraisers (ISBA) –

Hand-held calculatorAccording to the 2018 Small Business Profile by the U.S. Small Business Administration, there are about 30.2 million small businesses in the USA. Every so often, one of these businesses runs into a situation where the owner asks the question, “What is my business worth?”

A variant of that question might also be, “What is a specific percentage of my business worth?”

These questions get asked in situations such as the following:

• When a partner wants to buy another partner’s ownership interest
• When an owner wants to bring in a new partner
• When the business is located in a community property state, and the owner is getting divorced
• When an owner receives an unanticipated offer to purchase the business
• When the owner wants to sell the business
• When an ownership interest is being gifted to children, and a gift tax return is needed (more…)

Book Value and Business Valuation

March 6, 2019

By Shawn Hyde, International Society of Business Appraisers (ISBA) –

Book Value and Business ValuationEvery so often I come across a valuation report where the value of a shareholder’s interest in the company has been based on the Book Value of the business. Book Value is likely used because it is easy. It is updated every time the financial statements are updated, so it is always current. But in this article, I want to explore Book Value in more detail.

Book Value is tracked on a balance sheet by an enterprise’s accountants. The current asset section is fairly easy. Cash is equal to the amount of cash owned by the business, and the Book Value of cash is always equal to its Fair Market Value.

Accounts receivable are listed at the amount of cash the company is owed for services or products rendered, usually less an estimated amount for uncollectible accounts. Most of the time this asset’s Book Value is at least close to Fair Market Value. (more…)

Market Data Multiples – Things to Consider in Business Valuation

January 14, 2019

By Shawn Hyde, International Society of Business Appraisers (ISBA) –

Business valuationI had a conversation with an SBDC consultant recently, about transaction databases and how to best utilize an analysis of that data when valuing a business. She suggested I share this information with her colleagues in the America’s SBDC network, so here it is.

There are several different databases, each maintained by different organizations, that track transactions of privately held businesses — the prices they sold for as well as various other financial metrics for each transaction. The idea behind these databases is that one could analyze transactions of similar businesses that have sold, in order to identify an indication of value for a business. But there is more to it than simply pulling up the data for the applicable SIC or NAICS code and calculating the average or median of the data provided. (more…)

Rules of Thumb and Business Valuation

December 3, 2018

By Shawn Hyde, International Society of Business Appraisers (ISBA) –

Take a look at your thumb. Now compare your thumb to another person’s thumb. There are differences in size, shape, manicure, strength, and flexibility between these two thumbs. Remember this comparison, as we will come back to it at the end of this article.

A Rule of Thumb is a brief measurement, typically based on a specific part of the operations of a business, such as revenues or some other easily calculated income stream, including Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). The application of a rule of thumb includes some basic math, usually multiplying the selected source of income by a range of numbers.

Each industry, or type of business, usually has three or more different valuation rules of thumb that could potentially be applied to it. This means there are literally thousands of different rules of thumb that are available to provide indications of value for different types of businesses.  (more…)

What’s a Fair Price for a Privately Held Company?

October 22, 2018

By Shawn Hyde, International Society of Business Appraisers (ISBA) –

Publicly traded companies are valued every day on the stock market. But how do private business owners determine what a fair price is to buy out their partners? At what price they should sell their company? What’s the value of a 10% ownership interest in their company for gifting purposes?

The International Society of Business Appraisers (ISBA), www.intlBCA.com, exists to teach people how to answer these and other questions relating to the values of small businesses. Appraising privately held businesses involves logical thinking, financial analysis, and a healthy dose of practicality. (more…)