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Reddit mentions of Valuation Workbook: Step-by-Step Exercises and Tests to Help You Master Valuation

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Valuation Workbook: Step-by-Step Exercises and Tests to Help You Master Valuation
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Found 1 comment on Valuation Workbook: Step-by-Step Exercises and Tests to Help You Master Valuation:

u/bananajr6000 ยท 3 pointsr/smallbusiness

Valuation is like voodoo. According to the IRS, the fair market value is the most important, but in reality there are lots of factors. For example, what would the business sell for today if the owners agreed to stay on as regular full-time employees - That value might be zero if their cash flow is poor, but clearly the business is worth something (and they are not going to just give away equity based on poor income valuation)

http://en.wikipedia.org/wiki/Business_valuation

This Forbes article does a fair summation of the issues you are dealing with:

http://www.forbes.com/2009/09/23/small-business-valuation-entrepreneurs-finance-zwilling.html

I would probably start with asset and income valuation and then try to put a number on the existing owner non-asset goodwill defined as:

http://en.wikipedia.org/wiki/Goodwill_(accounting)

I would avoid, "valuation based on what the founders have already put in, i.e. a % of their day-job salaries and cash." Those are sunk costs. What I mean by that can be explained by analogy: Would you pay someone $30,000 for a rusted-out, broken down 1988 Ford Ranger because the owner put $22,000 of improvements into it over its lifetime?

The owners may feel it's worth $30,000 because of their efforts, but as I often think when I am browsing Craigslist and run across an extremely overpriced vehicle, "If there's not a couple gold bars that go along with it, I'm not paying that." The reality is that the owners are going to tend to over-value the company because of sunk costs, but you have to come to a valuation based on the current realities (future earning projections can be taken into account as well, but I would be conservative in those estimates.)

There are accountants who specialize in business valuation. I would definitely retain one to work for you and not for the company. Look for someone who is a CPA and a Certified Business Analyst or Certified Valuation Analyst or American Society of Appraisers member.

There is a book that was recommended to me (I haven't read it yet) called Valuation.

http://www.amazon.com/Valuation-Measuring-Managing-Companies-Edition/dp/0470424656/ref=cm_cr_pr_product_top

There is also a workbook:

http://www.amazon.com/Valuation-Workbook-Step---Step-Exercises/dp/0470424648/ref=sr_1_5?ie=UTF8&qid=1395756019&sr=8-5&keywords=valuation+measuring+and+managing+the+value+of+companies

Again, I haven't gotten around to these yet. I did notice that the first review of Valuation has a recommendation for a book: Business Valuation which that reviewer says is the best for reviewing small, private companies. The review:

http://www.amazon.com/Valuation-Measuring-Managing-Companies-Edition/product-reviews/0470424656/ref=sr_1_1_cm_cr_acr_txt?ie=UTF8&showViewpoints=1

The book:

http://www.amazon.com/gp/product/047037148X/ref=cm_cr_asin_lnk

Good Luck!