SBDC Valuation Analysis Program

This program uses various techniques to help

small businesses look at various approaches to valuation
for a potential purchase or sale of a small business.

Each technique has a separate worksheet, and a final worksheet prepares

a summary using all of the techniques. The Capitalized Adjusted Earnings
approach and Discounted Future Earnings approach are standard
valuation techniques employed in SBA lending, and utilize the methodology
described in the SBA's Standard Operating Procedures (SOP) for lenders.
The Business Valuation Model uses a fair market valuation of assets method,
and is provided courtesy of John Nelson III, owner of the Capital Connection.

The SBDC assists clients in putting their data into this format, and makes
no guarantee or claim to the accuracy of the numbers. This information is
typically "internal" in use by owners of a small business, and is not meant to
be shared with others or used as the sole means of determining the value of
a small business.

The input process can begin by completing each sheet, left to right,
by inputting data into BLUE fields only. The black fields are not protected,
and the user is warned to input over them at the peril of destroying formulas
and making the program unusable as originally intended.
Company Name
Date

Capitalized Adjusted Earnings (CAE)

Year Earnings Weight Adjusted Value Adjusted Value/Total Weight Indicated Value
1 $50,000.00 1 $50,000.00
2 $35,000.00 2 $70,000.00
3 $65,000.00 3 $195,000.00
4 $60,000.00 4 $240,000.00
5 $80,000.00 5 $400,000.00
Total $290,000.00 15 $955,000.00 $63,666.67 $318,333.33

Take five years of historic earnings. Year 5 is the most recent earnings year.

"All financial and business information contained herein was provided by the management of the business. The
SBDC assisted in compiling the data and presenting in the format shown, and makes no claims regarding the
accuracy of the presentation."
Company Name
Date

Discounted Future Earnings (DFE)

Year Average earnings Growth rate Projected Growth Factor Net Present Value
1 $58,000.00 105.00% $60,900.00 0.8333 $50,747.97
2 $60,900.00 105.00% $63,945.00 0.6944 $44,403.41
3 $63,945.00 105.00% $67,142.25 0.5787 $38,855.22
4 $67,142.25 105.00% $70,499.36 0.4822 $33,994.79
5 $70,499.36 105.00% $74,024.33 0.4018 $29,742.98
6 $74,024.33 105.00% $77,725.55 0.3349 $26,030.29
7 $77,725.55 105.00% $81,611.82 0.279 $22,769.70
8 $81,611.82 105.00% $85,692.42 0.2325 $19,923.49
9 $85,692.42 105.00% $89,977.04 0.1938 $17,437.55
10 $89,977.04 105.00% $94,475.89 0.1616 $15,267.30
Indicated Value $299,172.69

Average earnings year one, calculate the average earnings for the previous 5 years
or justify number based on current operations

A moderate growth rate of 5% is used for the projection

Factors based on 20% risk typical for small business. Do not change the factor column.

"All financial and business information contained herein was provided by the management of the business. The
SBDC assisted in compiling the data and presenting in the format shown, and makes no claims regarding the
accuracy of the presentation."
Company Name
Date

PROVIDED BY JOHN W. NELSON III, CAPITAL CONNECTION

BUSINESS VALUATION ANALYSIS
Based on the most recent tax return. Sample This Case
1 Sales $ 700,000 $0

2 Operating Exp. (COGS) $ 414,400 $0

3 Admin. Exp. $ 148,400 $0
4 Owners Salary $ 49,000 $ 611,800 $0
5 Depreciation $ 21,000 $0
6 Stabilized Earnings $109,200.00 $ -
7 Asset Value & Working Cap.
A. Land $ 20,000 $0
B. Buildings $ 120,000 $0
Inventory $ -
1. Raw $ - $0
2. In Process $ - $0
3. Finished $ - $0
4. Resale $ - $0
C. Total Inventory $ 60,000 $0
D. Equipment $ 60,000 $0
F. Other Tangible Assets $ - $0
G. Total Tangible Assets $ 260,000 $0
H. Working Capital Needed $ 40,000 $0
I. Tangible Assets & W/C $ 300,000 $0
8 Underlying Interest Rate $ 0.12 0%
9 Cost Of Money
A. Tangible Assets & W/C $ 300,000 $0
B. Underlying Interest Rate $ 0.12 0%
C. Total 9A + 9B $ 36,000 $0
10 Excess Earnings
A. Stabilized Earnings $ 109,200 $0
B. Cost of Money $ 36,000 $0
C. Excess Earnings $ 73,200 $0
11 Calculate Multiple Rating (1 through 6 higher is better)
A. Risk $ 4.0 0
B. Competitive $ 3.0 0
C. Industry $ 3.5 0
D. Company $ 5.0 0
E. Growth $ 4.0 0
F. Desirability $ 4.0 0
G. Owner's Reason for selling $ 6.0 0
H. Length of time current owner has owned $ 4.0 0
I. Length of time the firm has been in business $ 6.0 0
J. Profitability $ 5.0 0
K. Location $ 5.0 0

"All financial and business information contained herein was provided by the management of the business. The
SBDC assisted in compiling the data and presenting in the format shown, and makes no claims regarding the
accuracy of the presentation."
 L. Entry barriers $ 5.0 0
M. Customer Base $ 5.0 0
N. Technology $ 3.0 0
G. Total $ 62.5 0
H. Total divided by 14 $ 4.5 0
12 Value of Excess Earnings
A. Excess Earnings $ 73,200 $0
B. Multiple Rating $ 4.5 0
C. Value of Excess Earnings $ 326,786 $0
13 Total Business Value:
A. Asset Value $ 260,000 $0
B. Multiple Rating $ 326,786 $0
C. TOTAL BUSINESS VALUE $ 586,786 $0
Value of turn key operation $ 25,000 $0
D. Final Business Value $ 611,786 $0

"All financial and business information contained herein was provided by the management of the business. The
SBDC assisted in compiling the data and presenting in the format shown, and makes no claims regarding the
accuracy of the presentation."
ATION ANALYSIS
Notes
Last Annual

COGS
include depreciation exp
$ - Yearly
Last years

at FMV
at FMV

at cost
at cost
at cost
at cost

book or FMV
Furniture and Fixtures

lowest cash should go

highest rate allowed

rounded

minus

high risk, low #

more competitors, lower #
what's the future?
more desirable, higher #
higher growth, higher #
to own the company
better the reason, higher #
over 10years a 6, down from there
over 10 years a 6, down from there
industry std a 3 or 4, adjust from there
more desirable, higher #

"All financial and business information contained herein was provided by the management of the business. The
SBDC assisted in compiling the data and presenting in the format shown, and makes no claims regarding the
accuracy of the presentation."
 harder to start, higher the number
more loyal provable base, higher #
higher tech, higher #

Average of the above numbers

the mulitplier

An estimate, usually $15 -$25K

"All financial and business information contained herein was provided by the management of the business. The
SBDC assisted in compiling the data and presenting in the format shown, and makes no claims regarding the
accuracy of the presentation."
Company Name
Date

Small Business Valuation Analysis Summary

Valuation Technique

1) Capitalized Adjusted Earnings Value $ 318,333

2) Discounted Future Earnings Value $ 299,173
3) Market Valuation Value $0

Average of Above Techniques $ 205,835

Comments

"All financial and business information contained herein was provided by the management of the business. The
SBDC assisted in compiling the data and presenting in the format shown, and makes no claims regarding the
accuracy of the presentation."