Business Valuation Approaches, of which there are usually three, will be used for a business valuation: the asset approach, the income approach or the market approach.

The asset approach: The individual assets of the company are reviewed. Often, the adjusted book value method is used during this type of business valuation. This method does have a draw back though, as intangible assets are not measured in this approach. Should a company have a large amount of intangible assets, an appraiser may use a hybrid method, combining the asset approach with the excess earnings method, allowing any intangible assets to be included. This hybrid approach will provide a more accurate business valuation where a company has many intangible assets.

The income approach: Either the capitalization of cash flow or the discounted cash flow method may be used. The income approach does sometimes pose a problem, as the capitalization or discount rate to be used must be estimated. This rate is used to measure the risk that needs to be applied to the projected cash flow or income.

The market approach: Businesses in the same, or a similar industry are used to create valuation multiples that can be applied to a company for business valuation purposes. Private company sales, public company sales or stock prices may be used to construct the valuation multiples.
There are formulas that exist that allow businesses in particular industries to estimate their value. However, these are estimations only, and usually include a large scale of possible values, and so should be used as a guide only, and not an actual business valuation.

Regardless of the business valuation appraoch that is used, the business valuation must also comply with the new 2008-2009 USPAP Standards and Rules. Fussell Valuation Associates assure that your business valuation will be understandable, USPAP compliant, and we offer expert appraisal testimony should litigation arise. Fussell Valuation Associates has 70 years combined valuation experience with several instantces where we gave irrefutable expert testimony.

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Pension Valuation is for the asset that is overlooked most in divorce proceedings. When dividing the assets between a divorcing couple, pensions and any kind of retirement plans such as 401K, Keogh and IRS need to be divided equitably –known as equitable distribution. Some pension valuation methods only review that portion of the pension plan that has accrued during the marriage until the Complaint for Divorce is filed (Deferred Method).

With this method of pension valuation, it is important to assess any cost-of living increases and any appreciation that would be occurring on this portion earned during the marriage, but distributed in the future. That is why present value of the pension is not enough to determine pension valuation. Future payment of the currently earned pension will usually be eligible for cost of living increases. The present amount of the pension should increase in value between the time of the divorce and the time of actual payment. That increase in value is subject to be divided equitably and accounted for in the pension valuation.

The simple way to determine pension valuation by getting the pension balance is appropriate for determining the value of 401k plans, Keogh plans, and IRA’s. Annuities and pension valuation is more challenging. The right until death to receive monthly payments upon retirement is usually how a pension is defined.

However there are more benefits that a pension valuation needs to consider. Often after the pensioner dies, the surviving spouse will continue to receive benefits. These future payments to the spouse can be included in the pension valuation.

One way to do pension valuation (or the portion acquired during the marriage) is to determine the amount of money it was take to purchase an annuity (single premium) through an insurance company to give a benefit equal to what the pension would yield.

Published mortality tables are of use in another pension valuation method. The date of death can be determined from the mortality table. Pension valuation would then value the total of the monthly payments estimated. A discount of the total using the interest rate needs to be factored in, to determine present day value for the pension valuation.

Tax consequences need to be reviewed in any pension valuation. How was the pension funded? If payments into the pension were made with after tax dollars, the pension will not be taxed as it is paid out in the future. If payments into the pension were made with pre-tax dollars, then all of the payout will be taxed. That is a significant impact on the value. Pension valuations need to carefully evaluate any pension plan, as some plans are combinations of pre-tax and after tax payments. This of course will make the pension valuation more complex.

For Pension Valuation call Fussell Valuation Associates. Seven Senior Professional Appraisers with a total of 70 years experience in appraisals. We do valuations nationwide! Call 480 463 6579 for all valuation questions including business valuations, decedent estate appraisals, machinery & equipment appraisals, marital asset dissolution appraisal and much more. We also provide Expert Appraisal Witness Testimony.

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Business Valuation Risk Factors Defined: In addition to the appraisal approaches, risks must also be taken into account when performing a business valuation. Risk factors will vary between companies, industries, and are likely to change over time. Generally, risks are categorized into three groups: business risk, financial risk and liquidity risk.

Business risk: This is applied to all factors that may affect forecasted earnings. This includes any issue that may impact upon administrative and operating expenses, cost of sales and sales. Business risk is normally determined on a company specific basis, and requires the appraiser to understand the competition, industry, management focus and working capital of the company.

Financial risk: This is applied to interest expense, which has the capability of affecting forecasted pre-income tax earnings. Financial risk is nearly always developed to be company specific and is assessed on a businesses asset base. Financial risk is considered to be minimal if the business if financed mainly by equity. Financial risk will likely be considered to be medium to high if the business is financed mainly with debt.

Liquidity risk: This is applied to the process of disposing of a business at fair market value. Liquidity risk is not company specific, and is based upon the current industry.

Exact appraisal methods, conducted by a business appraiser, combined with an appraisal of risk factors for the business, are required to provide a company with an accurate business valuation. For this reason, a business valuation should always be conducted by a skilled business appraiser. Fussell Valuation Associates are skilled with seven Senior Professional Appraisers that have conducted business valuations for the past 30 years. Fussell Valuation Associates are USPAP 2008 - 2009 compliant and offer expert appraisal testimony should your valuation need irrefutable defense.

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