At Lee, Sperling, Hisamune, we provide a sophisticated business valuation service to aid clients in determining the value of their enterprise or one in which they plan to purchase. This formal process analyzes a company by utilizing as many as twelve different valuation methods (eventually using one, or a combination of several) to arrive at a fair market value.

A valuation is an important tool for all companies as a measure of shareholder or individual owner's wealth, or to prepare a business for sale, merger, partnership dissolution, or even when consideration is given to purchase a business.

Our Firm works closely with management to evaluate historical financial data and assists the company in the preparation of a projection of future performance. A thorough understanding of what the company has done, as well as what it will be able to do, is instrumental in determining the value of the business.

The valuation report is in full compliance with various Internal Revenue Rulings which pertain to valuations, including Ruling 59-60. The report also follows the requirements set forth by the American Society of Appraisers, as well as the principles of the Uniform Standards of Professional Appraisal Practice.

Also provided are fairness opinion letters related to the purchase and sale of a business and a conference to discuss the reports, opinions and any questions you may have.

We have produced numerous business valuations for a variety of purposes, including:

• Buy/Sell Agreements
• Estate Planning
• Bankruptcies
• Mergers and Acquisitions
• Pension Plans
• Family Limited Partnerships
• Opinion Letters regarding application of Minority Interest Discounts
  
  

How Much Is Your Business Worth?

You are the owner or a closely held business. You are healthy, your business is healthy and the market you operate in is strong. The contrary position may also be true - things have looked better in the past; now, what do I do? Regardless or your position, either you or your closest advisors (attorney, CPA, etc.) think it's time to have your business valuated. or course, you're curious about the worth of your business, but that hardly justifies the time and expense of a business valuation.

Why You Should Do A Business Valuation

• To prepare for the sale or purchase of a business.
• Where owners want to view their company as a prospective buyer would, in order to get a better look at its strengths, its weaknesses, and areas where they can make improvements.
• To buy-out a part owner or stockholder's share(s) in a company.
• For estate planning of owners. Avoid overpaying gift and estate taxes by having a well documented valuation study (helps prevent over-appraisal by the IRS).
• For property settlements following divorce or for division of property among heirs to an estate.
• For ESOP (employee stock ownership plan). An annual valuation must be made to support the employer's deduction for the ESOP contribution.
• To obtain financing - by showing the business is worth more than what is shown on the balance sheet. Where investors in a company want to measure their capital gains or losses to date.
• Where lenders or investors want to verify whether the deal is what it appears to be. To prepare for corporate or partnership dissolutions.
• To prepare for a reorganization.

WHY SHOULD I HAVE MY BUSINESS VALUED?

Regular valuations can answer the question, "How am I doing?" Depending on the method of valuation you choose, you can project future earnings, assess your company against similar operations or determine the market value of your intangible assets.

Furthermore, just because you're comfortable with your status it doesn't mean you shouldn't prepare for the possibility of changes down the road. You and your partner may want to set up a buy-sell agreement or an employee stock ownership plan. You may want to look at selling shares in your company to fuel an expansion. Do you know what the estate tax liabilities will be for your heirs? If not, a valuation will reveal that information. Applying for a business loan will also necessitate a valuation.

There are a number of different methods for valuing closely held businesses, each one providing a different view of the company. Often, several methods will be used to provide a balanced valuation. Other times, unique circumstances, such as special tax-planning strategies or family members working as employees, may dictate a particular method.

A VALUATION CAN BE INSTRUMENTAL IN PROJECTING FUTURE EARNINGS.

This can be accomplished by looking into the history of a company's earnings, being very careful to identify non-reoccurring income and expenses, and operating income and expenses. Next, we look at cash flow, which is important because the purpose of not only your business, but any business, is to generate a cash return in excess of that required for investments of comparable risk. And cash flow is important for other reasons such as paying off debt, reinvesting for expansion and compensating key employees and shareholders.

Once the necessary information is developed, we use the discounted cash flow method to discover the company's future earnings. The discounted cash flow is arrived at taking the sum of the company's future annual cash flows discounted at a rate commensurate with the risk of the investment. Your company provides the estimates for noncash expenses, working capital requirements and capital expenditures. The discount rate, which is the rate of return required for comparable investments, is applied to each period's cash flow to obtain its present value. The total of the present values is added to the value of residual (i.e., the value of all cash flows after the projection period) to find the indicated value.

IF A COMPANY SHOWS A SLOW, BUT STEADY RATE OF INCREASE - WHAT METHOD IS APPROPRIATE?

Here, we would recommend capitalizing your cash flow and net operating income as we determine your annual recurring earnings and long-term growth rate. The capitalization rate for net cash flow is calculated by using the discount rate minus the long-term growth rate. Finally, the capitalization of earnings is reached by dividing the cash flow amount by the capitalization of earnings.

THE PHYSICAL PLANT AND EQUIPMENT HAVE REAL VALUE ALSO, AND ARE A PART OF A PROPER VALUATION.

Your real estate, inventory, accounts receivable and cash are all considered assets. Since your company uses real estate and equipment as revenue gathering tools, we can value your assets to find your company's tangible net worth. It has to be kept in mind that this only measures tangible assets, and therefore wouldn't reflect the true worth of your business.

AN ACCURATE MEASUREMENT OF A COMPANY'S WORTH GOES BEYOND THE "FIGURES."

As a part of a through valuation we would want to talk with all key employees of your company. We would also like to tour the business premises. We would want to know if your workers are unionized, and if so, what agreements are in force. How does your company's pay scale measure up to others in the industry? Is management under contract, and have key employees signed non competition agreements?

We would also investigate the market you operate in. If a company is in a highly regulated industry, that will affect the valuation. Also, advertising, customer relations and how your product or service is priced are all important factors. Good will may play an important role in valuing your company, especially if you have high name recognition or an existing customer list.

OUR BUSINESS VALUATIONS ARE VERY THROUGH.

We know that valuing closely held companies means doing more than looking at stock prices. We consider it a challenge to uncover and weigh all the necessary information. The result is an accurate valuation for you, and an important business tool on which to base future decisions.

Lee, Sperling, Hisamune
550 North Brand Boulevard, Suite 525
Glendale, California 91203
Phone: (818) 507-6645 - Fax: (818) 507-7891
Email: lsh@leesperling.com