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Doeren Mayhew was retained to provide business valuations for multiple massage/spa franchise locations for purposes of obtaining loans through the Small Business Administration (SBA). The SBA loans were utilized for financing purposes related to pending ownership transactions. The subject companies specialize in high quality massage, facial and waxing services in luxurious and relaxing environments.

The primary documents relied upon included income tax returns, historical financial statements, income projections and the Franchise Agreements. Doeren Mayhew also held discussions with the buyer and/or seller and visited the locations.

The three primary approaches to value a business (asset, income and market) were reviewed in these engagements. Specific factors or adjustments considered within each approach based on the nature of the businesses were as follows:

  • Asset Approach – the adjusted book value method was reviewed, but ultimately discarded. As these businesses are service based, their value is ultimately derived from the cash flows rather than their net asset value.
  • Income Approach – The franchise locations subject to the valuation were relatively new, and therefore the discounted cash flow (“DCF”) method was appropriate. In developing our cash-flow projections, historical financials (which were limited) and projections prepared by the buyers were relied on. The buyer-prepared projections were reviewed and adjusted the for reasonableness based on industry ratios and profit margins, as well as our industry experience. A reasonable ramp-up period to reach full capacity based on local demographics and demand, the size of the facility, number of employees, and the need for any additional working capital and/or capital expenditures was considered.
  • Market Approach – the guideline transaction method was used by gathering information from DealStats on similar companies which have recently been bought or sold. Doeren Mayhew identified a significant amount of guideline transactions to use in determining a value for the franchises. As these locations are relatively new and their cash flows were minimal (yet growing), a majority of the weighting was on the price to sales multiples.

Doeren Mayhew provided a Summary Valuation Report to the clients in order to obtain financing for the pending transactions. Final valuation reports were provided within 2-3 business days of receiving all of the information required. The valuation reports were prepared in accordance with the SBA’s standard operating procedures per SBA SOP 50 10 5(J), and were prepared in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP).

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