Small Business

The Comparable or Guideline Company Approach is a method that the appraiser collects data on recent sales of similar companies and calculates the valuation multiples such as the price to earnings, price to revenue, price to cash flow. It is assumed the valuation multiples derived inherently represent the financial markets expectations of future earnings and assessments of future risk. The appraiser reviews the multiples to determine which ones are applicable to the subject entity. The guideline entity used in the final valuation analysis must bear some very similar behavioral characteristics as those of the subject entity. Speak to your local CPA or business broker for more information about valuing a business and on your pending purchase or sale.

The discounted future earnings method calculates the value today (discounted for time) of the businesses earnings in the future. The evaluator must forecast revenues, expenses, profits and cash flows. The appraiser must carefully analyze all factors and uncertainties that can impact a business’s ability to generate future earnings. Risk assessment is the most important aspect of the analysis. The discount rate, which is a percentage number usually between 15% and 100%, quantifies risk. Usually, the applicable discount rate correlates directly with yields on publicly available securities such as treasury bills, shares of publicly held companies or corporate bonds. The higher the discount rate the riskier the business. For small businesses, such as restaurants, liquor stores, convenience stores, bars or cleaners, a variety of other methods, ratios and formulas are used. These methods are unique to the circumstances and usually cannot be supported by straight forward theoretical documentation. Speak to your local CPA or business broker for more information about valuing a business and on your pending purchase or sale.

Valuing a business is a tricky process with the end result being to ascertain the fair market value. Fair market value is the amount at which the property would change hands between buyer and seller when neither are under compulsion to buy and when both have reasonable knowledge of relevant facts concerning the business. The Market Approach is a way to determine a value indication of a business, business ownership interest or security by comparing the entity to similar entity's that have been sold. Most small businesses finding a similar business that has been sold or finding a publicly traded company that was sold and similar in many ways to the entity is generally very challenging and difficult. The principal business or professional activity code number on the entity's tax return is a place to start in trying to find a company within the same industry as the business being valued. The Internet can be used to search and locate the Annual report 10k of a public company. The Annual report 10K statement discloses many of the ratios that should be compared to the entity being valued. Speak to your local CPA or business broker for more information about valuing a business and on your pending purchase or sale.

Valuing a business is a tricky process with the end result being to ascertain the fair market value of the business. Fair market value is the amount at which the property would change hands between the buyer and seller when neither are under compulsion to buy and when both have reasonable knowledge of relevant facts concerning the business. You can use the Asset Approach to determine a value indication of a business's assets and or equity interest. This method is based directly on the value of the assets of the business less liabilities. Goodwill is determines as total sales price minus the estimated assigned asset values. The asset approach is appropriate when the profits of a business are small in comparison to the assets employed to generate that business's profits. Speak to your local CPA or business broker for more information about valuing a business and on your pending purchase or sale.

The Dun & Bradstreet Corporation is located at One Diamond Hill Road, Murray Hill NJ 07974, or at www.dnb.com. 800.234.3867 (Monday – Friday from 8 a.m. to 6 p.m. Local Time)

You should initially apply online. Go to www.irs.gov/businesses and click on employer ID numbers. Your local IRS service center can also assist you in getting a Federal ein. The phone number is 1-800-829-4933:

Some aspects to consider are licenses required, zoning laws and other regulations that vary from state to state and business to business. Depending on the type of business you are running, you may also need establishment licenses, liquor licenses, delivery and or transport licenses. Your local SBA office or chamber of commerce will provide you with general information. You must decide about your form of organization. You must choose to be a sole proprietorship, corporation, s-corporation or partnership. Speak to your local CPA for advice specific to your business and location.

The address is www.irs.gov

The importance of keeping adequate, legible, complete records cannot be stressed enough. Without records you cannot see how well your business is going and where it is going. All business transactions should be documented with checks or credit cards. Undocumented cash transactions should be avoided if possible. At a minimum, records are needed to substantiate your tax returns under federal and state laws, including income tax and social security and sales tax laws. It also is necessary to substantiate your request for credit from venders or loans from lending institutions. It also is necessary to substantiate your representations and claims about the business should yo wish to sell the business. Speak to your local CPA to set you up on a good bookkeeping system.