A rule of thumb is a valuation ratio or multiple used to determine the value of a company in a particular industry. Rules of thumb can provide helpful data in a business valuation. Rules of thumb can provide a sanity check to determine if the valuation conclusion is within a reasonable range.

Some practitioners view this approach as a variation of the market approach. However, since the source of the underlying data is not usually known, it is difficult, if not impossible to determine if the comparable transactions are relevant to your company.

In fact, some rules of thumb are not even based on actual transactions but are based on analyst estimations. For this reason, rules of thumb should only be used to support a valuation conclusion determined by another method.

The amount of time it takes to complete a business valuation depends on the nature and complexity of the case.

For example, if a company has subsidiaries, it may require a valuation of each of the subsidiaries if the companies are separately operating companies. The time to complete an engagement also depends on the availability of the financial information needed to complete the engagement. In divorce cases in particular, it can be difficult to obtain the necessary data in a timely manner, which increases the time of the engagement.

Business valuation standards require valuers to perform various procedures for every valuation performed. For example, a site visit is usually necessary for all valuation engagements.

In general, it can take anywhere from 30 to 70 hours or more to prepare a comprehensive business valuation, depending on the circumstances of the case.

The book value of a company is simply the historical cost of the net assets less liabilities. Many times book value is the value stipulated in a buy-sell agreement but it does not represent fair market value.

Book value does not consider any appreciation of the fixed assets of the company. Accordingly, book value rarely represents fair market value even when an asset method is used to value the company.

Only in situations where the book values of the assets represent fair market value is this approach appropriate.

A minority discount is a recognized reduction in the value of an ownership interest to reflect the fact that the interest lacks the ability to control the operations of the company. The interest typically lacks the ability to control salaries, pay dividends, and affect key decisions of the company.

Numerous studies have shown that controlling interests of public companies sell at substantial premiums to their regularly traded minority shares. The inverse of this control premium is a minority discount.

A minority discount is appropriate if the method used to derive value results in a controlling interest value and the interest being valued is a minority interest.

The size of the minority discount depends on the degree to which the minority interest lacks the ability to control key management decisions.

It can be affected by the amount of shares held by other shareholders, minority shareholder statues, stockholder agreements and other factors, which indicate the lack of control of the subject interest.

A marketability discount is a recognized reduction in the value of an ownership interest that reflects the fact that an owner of a company lacks the ability to convert the interest into cash in a short period of time.

The owner of publicly traded stock has the ability to convert it to cash in a short period of time. Conversely, the owner of a closely held company lacks a ready market in which to sell his or her shares. Empirical evidence indicates that when a publicly traded company issues shares that are restricted from being resold for a certain period, the shares sell at substantial discounts to their unrestricted issues.

These and other studies indicate that shares that lack liquidity require a significant discount on the open market. Most closely held companies lack market liquidity and must be discounted to reflect fair market value.

Many valuers use the valuation ratios of publicly traded companies to determine the value of their closely held business.

For example, if a group of public companies in a particular industry are selling for 70 percent of sales, this ratio can be applied to the closely held company to determine value. The valuation ratios of public companies can be used to value a closely held company when there is sufficient public company data in which to make a comparison.

The public company should be somewhat comparable in size and be in the same or similar industry of the subject company. If there is not sufficient comparable data, this method should not be used.

The comparable company should be analyzed to determine if it has truly comparable operations to the subject company. For example, if the public company you are analyzing has no debt and the subject company has a significant amount of debt, you should seriously consider whether to use it in your analysis. In practice, it is very difficult (but not impossible) to find sufficient comparable data to use this method.

Many business owners who contemplate retirement develop a strategy to sell their business upon retirement. This way, the value of the business that has been developed over time may be realized in cash. Our firm has assisted many of our clients in finding a buyer for their business. The resulting value may depend on the degree to which the client base can be transferred to another owner and the degree to which the seller helps in this process.

• Accurate Values As a client, you can count on the extent and diversity of our experience to provide staff that can quickly and accurately value businesses in your industry.
• Fast Response We have a knowledgeable staff ready to serve your needs with a quick turnaround time.
• Independent Assessment - Our opinions are based on our staff's professional judgment and information accumulated from internal and external sources. We are frequently called upon to appear as expert witnesses in litigation to attest to the accuracy and implications of business valuations.

For the valuation engagement and the valuation report to be meaningful, it is important to establish a number of parameters about the valuation, including:

• The business interest being valued
• The standard of value fair market value, investment value, fair value
• The premise of value going-concern, liquidation
• The purpose and intended use of the valuation estate planning, merger and acquisition, litigation, etc.
• The effective date of the valuation

It is important to know that a professional, holding certifications in business valuation, has the knowledge necessary to best perform the valuation. Our business valuators meet rigid professional training and testing requirements.

Even more importantly, a CPA who performs a valuation has a keen perspective of the tax ramifications of which a non-CPA may not be aware. Certified public accountants know how to factor such pertinent information into a valuation, producing a more accurate result.