How To Create A Business Valuation Report

A business valuation report is an attempt to thoroughly document and assess the value of an enterprise or a group of assets, taking into account all relevant market, industry, and economic factors. It encompasses not only an analysis of the Subject Company’s financial data, but also analysis of the industry and comparable companies, the application of the appropriate valuation approaches, and good judgement in the assumptions made.

In this article, we’ll address how to do a business valuation report, the questions the report should answer, and present a sample table of contents for a valuation report, showing all the data and analysis components that go into a comprehensive business valuation report.

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How To Do A Business Valuation Report

In a previous article we discussed in detail the steps for valuing a business; for the purposes of this article, here is a summary:

1. Understand the purpose of the valuation.
2. Determine the basis of value.
3. Determine the premise of value.
4. Review the historic performance of the business.
5. Determine the future outlook for the business.
6. Determine the valuation approach to use.
7. Apply discounts.
8. Arrive at a determination of value.

In the process of performing these steps, the appraiser will have:

• Gathered data about the Subject Company, comparable companies, the industry, and current market conditions
• Selected the valuation approach or approaches to use
• Performed calculations to determine the value of the company

This data and analysis will provide answers to all the questions the valuation report should answer. Preparing the final report consists of compiling all the information into a well-organized format.

Valuation Report Template

The sample table of contents below shows all the information that might need to be covered in a report. For a large or small business valuation report, this template will cover all the elements that factor into the determination of value.

CONTENTS

I Executive Summary

1. Purpose.
2. Assets Appraised (“Subject Assets”)
3. Valuation Methods
4. Approach
5. Economic Perspective
6. Valuation of Tangible Personal Property
7. Valuation of Tangible Real Property
8. Valuation of Intangible Property
9. Conclusion of Fair Market Value

II Introduction

1. Scope of the Report
2. Assets Appraised (“Subject Assets”)
3. Fair Market Value Definition
4. Elements of Value Definition
5. Highest and Best Use
6. Intended Use
7. Intended Users
8. Limitations
9. Sources of Information
10. Report Structure

III Company History and Overview

1. History
2. Products and Services
3. Operations

IV General Economic Outlook

1. Summary
2. Economic Growth
3. Consumer Confidence
4. Consumer Spending & Inflation
5. Financial Markets
6. Housing Market
7. Unemployment
8. Monetary Policy & Interest Rates
9. Conclusion.

V Industry Overview

1. Introduction
2. Industry Evolution
3. Regulatory Environment

VI Valuation Approaches

1. Three Valuation Approaches
2. Cost Approach
3. Income Approach
4. Market Approach
5. Summary

VII Operating Enterprise (Income Approach)

1. Cost of Capital
2. Discounted Cash Flow of the Operating Enterprise
3. Identification of Components of Operating Enterprise

VIII Design of the Replacement Assets

1. Replacement Assets Architecture
2. Replacement Cost New (ReplCN) Modeling
3. ReplCN Network Overview
4. ReplCN Network Components
5. Investment Drivers & Assumptions
6. Cost of the Replacement Assets

IX Application of Depreciation

1. Depreciation
2. Obsolescence Adjustments

X Personal Property Value Summary

1. Personal Property Value Conclusion

XI Real Property Value Summary

1. Valuation Approaches
2. Buildings
3. Land
4. Real Property Value Conclusion

XII Tangible Property Value Conclusion

XIII Intangible Property Value Conclusion

XIV Conclusion of Overall Value

XV Statement of Limiting Conditions

XVI Certification

XVII Appendices

As shown in the sample table of contents, the final valuation report is comprehensive, extremely detailed, and covers all factors that may impact the value of the business. (Tweet this!)

There are currently several online business valuation calculators, which might be useful to satisfy curiosity regarding the possible ballpark value of a small business. A comparison between the table of contents above and the scant information used to calculate business value in these online applications illustrates why a professional appraisal is advisable for businesses of any size contemplating a sale, or for tax or litigation purposes—and illustrates why comprehensive appraisals are an absolute necessity for large or complex enterprises.

Without accurate information, a business valuation is just a guess.

Business valuation is a complex process that requires expertise—but even the best appraiser can’t calculate an accurate value without accurate and complete information.

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