How to Value a Business

There are various factors that come into play during the process of business valuation, including subjective interpretation, economic conditions and the reason for valuation. If the business is valued for sale, its worth depends on what's important to the buyer. One may believe the value is connected to its service to the community, while another may only consider income as the sole indicator of value. There are three fundamental approaches for determining the value of a business: asset, market and income.

Asset Approach

Step 1

Gather all business balance sheets to collect information regarding what assets have been purchased by the business. This should also include all assets that have been donated or transferred to the business, according to ValuAdder.

Step 2

Collect all necessary information regarding any inventory that may have been created within the business.

Step 3

Take into account any proprietary information owned by the business. This may include internally developed products and proprietary ways of doing business.

Step 4

Choose appropriate methods to value each asset. A common method is to consider the amount the owner paid for the asset to determine value. However, many assets are not purchased by the business owner, such as internally developed products and proprietary business methods. Add the sum of all values. The resulting figure provides the total value of the business.

Market Approach

Step 1

Check advertisements for similar businesses for sale. Depending on the type of business, it may be relevant to confine the search to local advertisements. The businesses sampled should be similar in size and scope. The more refined the criteria used for sampling, the more accurate the business valuation will be.

Step 2

Record the selling price of each advertised business.

Step 3

Calculate the sum of sampled businesses for sale. Divide this figure by the number of businesses sampled. This will provide the average price of similar businesses, which can be used as the fair market value of the business to be valued.

Income Approach

Step 1

Calculate the discount rate of the business by comparing the potential investment with other safer alternative investments, such as U.S. government bonds. The discount rate represents the required rate of return to make a business acquisition worth the invested amounted. If a business purchase is financed by both equity and debt, the discount rate can be calculated as a weighted average cost of capital.

Step 2

Calculate the capitalization rate by subtracting the expected annual long-term growth rate from the discount rate. Capitalization rate is the rate of return on an investment based on expected income the investment will generate, according to Investopedia.

Step 3

Divide the annual earnings of the business by the capitalization rate. This figure is the valuation of the business.

Sources

ValuAdder: Business Valuation: Three Approaches to Measuring Business Worth [http://www.valuadder.com/valuationguide/business-valuation-three-approaches.html]

ValuAdder: Capitalization Rate Definition[http://www.valuadder.com/glossary/capitalization-rate.html]

ValuAdder: Weighted Average Cost of Capital (WACC) Definition [http://www.valuadder.com/glossary/weighted-average-cost-capital.html]

Investopedia: Capitalization Rate Definintion [http://www.investopedia.com/terms/c/capitalizationrate.asp]

ValuAdder: Discount Rate Definition [http://www.valuadder.com/glossary/discount-rate.html]

How to Assume a Car Loan

If you do not have enough money to buy a used car outright, you may want to consider taking over somebody’s car payments. This requires that you legally assume the lease for the car. You would be responsible for making payments on the car for the time remaining on the lease. However, not every lease company will allow you to assume a loan. Additionally, your income and credit history may also play a role.

Step 1

Have the vehicle owner contact his or her finance company to inform it that you are planning on taking over the remainder of the car loan agreement.

Step 2

Submit an application to the leasing company. Your income to debt ratio and credit report will play an important role in the company’s decision. If you are not immediately approved to assume the loan, then offer collateral in order to gain approval.

Step 3

Inspect the loan agreement and make sure you understand all of the conditions attached to the contract. If you understand and agree to all the terms listed in the contract, then sign the agreement. The entire process can take anywhere from several days to a few weeks depending upon the company.

Step 4

Begin making payments according to the loan agreement. You will be required to continue with the original schedule of payments. You may need to start making payments immediately after signing the loan agreement.

Tips

• Make sure you are comfortable with the monthly payment amount specified in the lease agreement.
• It is always a good idea to consult an attorney or a personal finance professional if you have any questions.
• If your credit is not acceptable to the loan company, then you may want to consider finding a co-signor.

Sources

Loan.com: The Basics of Assuming a Car Loan [http://www.loan.com/car-loans/the-basics-of-assuming-a-car-loan.html]

Who Can Sign a Customs Power of Attorney?

U.S. Customs has specific rules regarding who is allowed to sign a power of attorney. There are specific rules for incorporated companies and companies from Canada.

Incorporated Companies

Without supporting “articles of incorporation,” the only titles allowed to sign for an incorporated company are the president, vice president, secretary or treasurer. This is true for most incorporated companies, however there are some exceptions for smaller corporations, according to Livingston, which is a leading North American provider of customs brokerage and transportation.

Smaller Incorporated Companies

U.S. Customs makes certain exceptions for who can sign the power of attorney for smaller corporations. A person does not have to have the title of president, vice president, secretary or treasurer if that person is the sole signing officer, according to Livingston. This must be explicitly written on the power of attorney.

Canadian Companies

There are special rules for Canadian companies wishing to pass through U.S. Customs. The officer signing for a Canadian company must complete a “certification by Canadian corporation.” This officer must be different from the officer who completed the power of attorney document, according to Livingston.

Sources:

Livingstonintl.com: U.S. Power Attorney FAQ [http://livingstonintl.com/shippingtousb.cfm?id=1453]

Demand for Facebook Shares Overwhelms Goldman

Goldman Sach’s estimated acquisition of $1.5 billion in equity ownership in Facebook has excited many stock market investors. Since the announcement, clients have stormed Goldman with orders for Facebook shares. This is surprising since Goldman has only disclosed a small amount of information regarding Facebook’s online traffic to its investors, according to the Wall Street Journal in an article titled “Goldman Flooded With Facebook Orders.” Overwhelming demand has forced the investment corporation to stop offering Facebook shares for sale. The SEC is currently debating whether to mandate that Facebook become a publicly traded corporation, which would mean it would have to issue common or preferred stock shares into the public stock market.

Jobs and Real Estate Development Looking Up

The US economy shows sign of recovery and stability in the areas of jobs and real estate. Jobless claims have dropped dramatically last week, according to the New York Times in an article titled “Jobless Claims are Lowest Since July 2008.” Applications for unemployment benefits dropped by 34,000. President Obama signed a new tax bill on December 16, 2010, which extended Federal unemployment benefits for another 13 months, reported MSNBC in an article titled “Obama signs tax cut bill into law.”

Real estate development, despite the recent economic conditions, has continued to attract investment loans from banks. Many large real estate development corporations had suffered gigantic loses during the current recession, according to the New York Times in an article titled “For Real Estate Developers, Failures Hardly an Obstacle.” However, these developers were still able to garner bank loans for further ventures, despite multi-billion dollar losses.

Job market improvement and banks’ willingness to still invest in real estate development may lead to an overall economic recovery.

China Continues Fight Against Inflation on Christmas

Chinese leaders have pledged to vigorously fight inflation of the Chinese currency. On Christmas Day the Chinese government made good on its promise by raising interest rates, reported Bloomberg in an article titled “China Increases Rates to Curb Its Fastest Inflation in Two Years.” In November, China’s inflation was 5.1 percent, which is the highest in 28 months. China has already increased banks’ required reserve requirements six times this year in order to battle inflation, according to Reuters in an article titled “China fights inflation with Christmas rate rise.”

Ernst & Young May Face Lawsuit

New York accounting firm, Ernst & Young may face charges of misconduct in handling accounting records of Lehman Brothers, the investment bank at the center of the financial crisis. Ernst & Young certified the investment corporation's financial statements from 2001 through 2008, according to a New York Times article titled “Ernst & Young Faces Suit over Lehman” published on December 20, 2010. Regulators are preparing to file suit against the accounting corporation. This would be the first significant legal action related to the Lehman Brothers collapse.