2023 Compliance Trends: Staying Ahead in an Evolving Regulatory E...
2023 Tax Calendar
VIEWpoint Issue 2 | 2022
7 Trends Defining the Future of Non-Profits
What’s in the Fiscal Responsibility Act?
Reasons to Consider Outsourced Accounting for Your Non-Profit
Gain insight into the approaches Doeren Mayhew took to provide an SBA business valuation for a pizza franchise.
Doeren Mayhew was retained to provide a business valuation for purposes of obtaining a loan through the Small Business Administration (SBA). The SBA loan was utilized for financing purposes related to a pending asset transaction. Revenues of the subject company were $800,000 at the time of the valuation. The subject company was a well-known pizza franchise, providing pizza, salad and breadsticks, among other staple menu offerings via takeout only.
The business valuation required research related to the economic and industry-specific conditions related to the subject company. Specific factors considered were trends in pizza franchise sales multiples, as well as the impact that COVID-19 shut-downs and restrictions had on pizza franchises in general. The terms contained within the Franchise Agreement of the subject company were also reviewed and considered in the valuation process.
The subject company had existing long-term debt and a Paycheck Protection Program (“PPP”) loan through the SBA, however, these debts were not considered in the valuation as they were not included in the Asset Purchase Agreement. Doeren Mayhew reviewed the Asset Purchase Agreement in detail and only considered the assets being purchased in the conclusion of value.
Doeren Mayhew reviewed many documents of the subject company, including income tax returns and internal financial statements, and relied upon input from the client in order to analyze the cash flows of the company. Throughout the engagement, Doeren Mayhew had frequent communication with the business owner and their advisors via email to address specific questions.
The three primary approaches to value a business (asset, income and market) were reviewed and utilized in this engagement. Specific factors or adjustments considered within each approach based on the nature of the business were as follows:
Asset Approach – The adjusted book value method was utilized taking into consideration the specific assets and liabilities included or excluded from the Asset Purchase Agreement.
Income Approach – A capitalization of earnings method was used. This method considered the various risk components of the subject company including the management structure, local economic conditions, the impact of COVID-19 on the business and the local economy, and the historical financial results of the business.
Market Approach – The guideline transaction method was used by gathering information from DealStats on similar companies that have recently been bought or sold.
Doeren Mayhew provided a summary valuation report to the client in order to obtain financing for the asset transaction. A final valuation report was provided within three business days of receiving the information required. The valuation report was prepared in accordance with the SBA’s Standard Operating Procedures per SBA SOP 50 10 5(J) and the Uniform Standards of Professional Appraisal Practice (USPAP).
Contact our valuation advisors to learn more about our SBA valuation services.
A quick registration is required to view our resources.
You will only be asked to do this one time (unless you don't save your browser cookies).