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Business Valuation-Sampleproposal FOR EMPLOYERS Business Valuation Proposal Presented to Sample Company Presented by Doug Ingram Capstone Financial Group Based on financials from 2012 - 2014 BB9868SBVAL-06 | ML 12-002778 BUBSUISNEINESSSS O WOWNERNER & &E XECUTEXECUTIVEIVE SO SLUTOLUTIOINOSN S How to Determine the Value of Your Business Lean on the Capstone Financial Group to help you maximize the effectiveness of your business. Tailored solutions Capstone Financial Group provides you access to a complete package of tailored solutions to help you, your business and your key employees. These solutions have been categorized into six primary areas of financial need. After helping you identify and prioritize your areas of need, we can focus on offering solutions to enhance your financial security. Solutions Retirement Business protection – In the event of a death, resignation of a key employee or a future change in management, would your business be as successful as it is today? Exit planning – Do you occasionally obtain a valuation for your business? If you were to sell your business today what would be the market value? Have you established a definite time period to transfer your business to a specific party at an established price? Income protection – If you or a key person to your organization were to experience an accident or severe illness, how would this affect your business? Would you be able to meet present financial obligations based on your expected income during that stressful time? Survivor income – Will your spouse and beneficiaries be able to maintain their desired standard of living after your death? How would the unexpected death of a partner or key person affect your business? Wealth transfer – Is your personal will/trust current and does it accurately reflect how you want your assets distributed? Is the buy-sell agreement or business succession plan for your business current and properly funded? Retirement income – Are you or your key employees able to set aside enough money for retirement considering the limited amount of contributions that can be made to a qualified plan? The Problem of Business Valuation How to Determine the Value of Your Business An exact method for determining the value of a business does not exist. The more "experts" you ask, the more opinions you will receive. And more than likely, the opinions will vary widely. There are many instances when the value of business assets is needed, such as for buy-sell agreements, business loans, and for estate planning purposes. At your death, the value of your estate is subject to estate taxes. Your business assets are part of your estate. Therefore, the higher the value of your business in your estate, the more estate taxes you will pay. The lower the value of your business, the less estate tax you will pay. The IRS will attempt to value your business at the highest reasonable level, while your heirs will try to minimize the value of your business. There are many methods by which a business may be valued. Five of the most commonly used methods are described below. • Book Value: The value at which the business is carried on a balance sheet, with all assets adjusted for fair market value (fair market value may not be the same as the depreciated value for income purposes). • Straight Capitalization Method: The amount of capital that would have to be invested at a specified rate to yield the current average net annual earnings of the business. • Capitalization of Earnings Method: Assumes that part of earnings are attributed to the assets of the business (book value). Remaining earnings are capitalized at a rate consistent with the relative risk of the business. The result is then added to book value. • Years' Purchase Method: A conservative rate (the pure money rate for an investment with generally accepted lower risk) is used to determine the earnings attributed to assets. The balance is assumed to be provided by goodwill. The earnings provided by goodwill are then multiplied by the number of years for which goodwill is expected to be valuable to a purchaser. The result is then added to the book value to obtain the valuation. • Discounted Future Earnings Method: Projected future business earnings are forecasted, and then discounted using an appropriate rate which reflects the return from the next best investment opportunity with a comparable level of risk. The sum of the discounted future earnings is the current valuation. The average of these five methods is not an acceptable method of valuation. It is shown in this presentation for comparison purposes only. 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