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At Robert A. Bonavito, CPA, A Professional Corporation, each NJ business valuation accountant has extensive experience in preparing valuations for businesses and/or divorce cases.

In a world where business relationships are constantly changing, the need to have a business valued or appraised arises often. There are many reasons why you may require a business valuation. They include:

Mergers and Acquisitions

Divorce

Estate and Gift Taxes

ESOP's

Stockholder Disputes

Buy-Sell Agreements

Statutory Requirements

Partnership Dissolutions

New Partner Admissions

Damage Assessment

Every New Jersey business valuation accountant at our firm possesses analytical skills, information gathering expertise, and the sound business judgment needed to approach a valuation assignment. Their extensive experience and hands-on training provide them with the tools to competently appraise every type of business.

Each business is unique in its particular market, its competitive environment, the experience of the management team, its national or regional economic influences, and its financial history. Because these internal and external factors influence the value of the business, the valuation process is often complex and involved.

There are three approaches to valuing a business, each approach containing several valuation methods. There is more than one standard of value which must be considered for each engagement. Typically what is being appraised and the context of the appraisal will determine the appropriate standard of value. In most cases where a litigation is involved, for example, fair market value or fair value are usually the most appropriate standards of value.

A Complete Range of Services for New Jersey Business Valuations

A Comprehensive Valuation. Our most extensive service, designed to provide an unambiguous opinion as to the value of the business, business interest, or security. It is supported by all procedures that the appraiser deems to be relevant to the valuation.

A Limited Valuation. The next step down from comprehensive business valuation, as it lacks the performance of additional procedures that are required in an appraisal. This type of assignment can be considered to be an "agreed upon procedures" appraisal that should only be used in circumstances where the client is the only user of the appraisal.

A Calculation. The lowest level of engagement, where the appraiser is to provide an approximated indication of value based upon the performance of limited procedures agreed upon by the appraiser and the client.

Economic Damage Calculations. Provided for quantification of the loss incurred due to breach of contract, wrongful death, personal injury, wrongful termination, sex or age discrimination, patent infringement, or any other type of litigation requiring this type of service.

New Jersey Litigation Support Services. Include expert testimony, review of other appraisals, critiques of other reports, deposition, and trial questions for opposing experts and the provision of visual aids at trial.

Forensic Investigations. Provided for income and asset determination and tracing, and are an essential component of our services.

A CYA report. An opinion letter as to whether or not a full valuation is required. This report is ideal for the attorney who is unsure if a company has any value and wishes to "cover your assets".

Business Valuation FAQs
Why do I need a business valuation?
There are many reasons to have a business valuation prepared by a New Jersey Business Valuation Accountant. The main purpose is that a valuation can memorialize the value of your company at a specific date. Obviously, this is very useful for many reasons. Mainly valuations are used in the following ways; establish a value for partners coming into or leaving the firm, a buy-sell agreement, a marital dissolution, estate planning, gift tax planning, litigation support, bank funding, ESOP valuation, mergers, acquisitions and shareholder and partner disputes.
What are the benefits of a business valuation?
When you least expect it, having a good understanding of the value of your partnership or business will become very important. If you are about to get married, it is important to have the value of your business before the date of marriage in order to establish value, in the event the marriage does not last. If you are bringing in a partner or selling shares of stock, it is important to have a business valuation in order to understand whether or not what you are being paid is appropriate. There are many benefits to a valuation, but the important thing is to have a business valuation at specific dates so that the value is memorialized.
When should I have my business valuated?
Valuations take time and it is generally better to have a valuation prepared on or before key milestones in your business. Some of these milestones are bringing on a partner, selling stock to an investor or marriage. It is best to consult with a New Jersey Business Appraiser if you think you need a valuation.
What is included in a business valuation?
In order for an appropriate business valuation a New Jersey Business Valuation Accountant needs to prepare and include specific required analysis in the report. Even though the appraiser will have a conclusion of one specific value for your business in the report, he typically looks at the cash flow of the company, the net asset value, and applicable multiples. Using the information gathered from these three methodologies the appraiser will then come to a conclusion on the final value. In order for the appraiser to become familiar with your business he will look at economic conditions, the management and set up of the company and review the industry the business operates in. A business appraisal includes some business analysis you may think would not be important to an appraiser such as obtaining key contracts, pricing lists and analyzing competitors. A business appraisal is usually very comprehensive and covers many different aspects of your business and industry.

What types of intangible assets can be used to calculate the value of a business? Historically tangible assets have been the most important and valuable aspect of any company. In the early 20 th century companies such as General Motors, Ford and General Electric all had extensive tangible assets, such as plants and equipment. Now in the 21 st century that has all changed. For many companies, their most valuable asset is intangible, such as a name like Facebook, or the source code to Google's algorithm. These intangibles are worth billions of dollars. When valuing even a small business you can have intangibles such as patents, trademarks, copyrights and other intangible assets. In any valuation your New Jersey Business Appraiser will take a look at your intangible assets and place a value on them based on several techniques.
What kind of documents do I need to provide for a business valuation?
Your New Jersey Business Valuation Accountant will need several basic documents such as five years of tax returns and financial statements, management structure, a narrative that includes a description of the company's industry and history of the business. These documents are usually a good place to start.
What is the difference between a business valuation and a business appraisal?
There is no difference between a business valuation or business appraisal. The terms are used interchangeably, and the service provided under each is dependent on the purpose of the valuation or appraisal.
What types of "value" are used when calculating business valuations? (include references to fair market value, fair value, and investment value)
The same business can be valued at different prices depending on the type of valuation and the value that the appraiser is applying. For example, the book value of a company is simply based on subtracting the liabilities from the assets. The liquidation value is the value that the business would actually be able to sell those assets at. As we know, when you are forced to liquidate you usually will receive a lot less than what you would normally get if you took your time to sell those assets. These are two examples of how the value in an appraisal can differ even though it is the same company.

Three types of values that are typically used in appraisals are investment value, fair market value, and fair value. With investment value a purchaser of a company is willing to pay more than a company is worth because they have some type of competitive advantage. Fair market value is what a seller and buyer would pay with each knowing all the facts about the company. Fair value is usually a value that is based on a state statute and has specific guidelines on how to calculate that value. Obviously, this area of valuation is extremely complex and that is why a New Jersey Business Appraiser can assist you in deciding which type of value is best for your needs.
Can my ownership interest be valued if I want to sell my business?
Yes, your ownership in a company can be valued no matter what the actual percentage. If you are a majority owner or minority owner your value can be calculated by a New Jersey business valuation appraiser. Of course, depending on your circumstances, you may be subject to a minority discount or control premium.
What are the different business valuation approaches?
There are three main approaches to a business valuation, they are the asset approach, the market approach and the income approach. A New Jersey Business Appraiser will use all three when valuing your company. The main difference between these three approaches is that one relies on comparable type businesses and what they sell for in the market, while the income approach actually calculates the cash flow the owner is expected to receive from the business. The asset approach simply values the current assets of the company.
What are the types of small business valuation methods?
Surprisingly, small businesses are subject to the same approaches and methodologies used to value larger companies. The three methodologies are the asset approach, the income approach, and the comparable company approach. The main difference is that many small businesses will sell at a multiple of the company sales or owners expected compensation. For example, there are specific rules of thumb for some businesses such as coffee shops, bagel stores, dental practices and gas stations. If the going rate for your business is five times sales, that is how your business will be valued. Obviously, each business is unique and different and would have to be investigated by a New Jersey business valuation appraiser, but multiples are a big part of valuing small businesses.
How is a small business appraisal different from a larger company appraisal?
The main difference between a small business appraisal and a large business appraisal, is that small companies usually have much less information that is accurate and available. In small businesses sales are usually understated and expenses are overstated. That is why most small businesses are valued using industry rules of thumb that are applied to the sales or net income. By using a multiple for a small business, it takes into account that income may be understated, and expenses overstated.
Should I have my business equipment appraised?
New Jersey Business Appraisers may value your equipment or bring in an outside specialist if needed. The two main reasons businesses have their equipment appraised are for either financing or insurance purposes. Also, as part of a business valuation equipment is appraised, if it is a relevant issue on the total value of the company. Equipment appraisals are not recommended unless there is a specific need.
Do I need a full valuation or an estimate of value?
Depending on the purpose of the valuation you may be able to reduce the time spent on the valuation by selecting a lower level service. New Jersey Business Valuation experts offer a variety of valuation services that can fit your needs and price point.
What is a business valuation calculator?
In order to have a truly professional and accurate valuation of your business there can be no shortcuts. There is some misinformation online concerning the ability to appraise your business using a valuation calculator. Unfortunately, these are generally a complete waste of money and time.
Is there a business valuation formula?
There is something called rules of thumb that has been used for decades in order to get an idea of what a typical business is worth in specific industries. Sometimes you will see business salespeople advertise specific valuations on companies using these rules of thumb. Sometimes rules of thumb can be helpful, but most businesses have a unique aspect that must be considered in order to find the true value of the company.
How long does a business valuation take?
In order to a appraise your business a New Jersey Business Appraiser needs to obtain many documents, research the industry, the current economic environment, review the businesses assets and interview key employees and management. Obviously, this takes a good amount of time. The best way to reduce the amount of time a valuation takes is to be as organized as possible and have specific documents ready for review once the valuation begins.
Why should I hire a New Jersey business valuation accountant?
New Jersey Business Valuation Accountants offer a variety of business valuation services. Experienced business appraisers have years of knowledge accumulated by working on dozens of business appraisals. New Jersey Business Valuation Accountants lead the country in many aspects of valuation and can provide you the highest and best level of services.

Contact an Experienced New Jersey Business Valuation Accountant Today

To learn more about our services regarding New Jersey business valuations, contact us online or by phone at (908) 322-7719 today.

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At Robert A. Bonavito, CPA, A Professional Corporation, each NJ business valuation accountant has extensive experience in preparing valuations for businesses and/or divorce cases. In a world where business relationships are constantly changing, the need to have a business valued or appraised arises often. There are many reasons why you may require a business valuation.

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3 Ways to Discover What Your Small Business Is Really Worth

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A business valuation is a way to determine the economic value of a company, which could be useful in several situations. For example: You may need to sell the business due to retirement, health, divorce, or for family reasons.

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New Jersey Business Appraisals- Business Damages

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New Jersey Business Appraisals- Business Damages

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Our New Jersey business appraisals firm has the training, experience and judgment to provide sound, defensible economic damage assessments. Often business litigation involves economic damages. In some instances, companies seek compensation for one or more of the following:

Lost business value

Lost profits

Breach of contract

Lender liability claims

Tortuous interference claims

Theft of intellectual property claims

Breach of covenants not to compete

Insurance claims

Patent infringements

Trademark violations

Fraudulent conveyances

New Jersey Business Damages FAQ
What are business damages?
Business damages especially in New Jersey when they involve a business appraisal, can be calculated in many ways and include many legal remedies. Depending on the type of damages we may be able to calculate the net present value of damages. Sometimes you may receive a cash award or perhaps you could pursue specific performance or even an injunction. Profits can be based on legal precedent or equitable relief depending on the jurisdiction the dispute is settled in.
How are business damages calculated?
We use different methodologies to calculate business damages depending on the type of loss. Sometimes the damages are based on expected lost profits, consequential damages or liquidating damages. We have used these methodologies for New Jersey business appraisal damages extensively.
What types of damages are covered with business insurance?
The best protection against damages and lawsuits is to have insurance to cover potential liabilities. Typically, liability insurance can cover damages or claims by employees, customers or partners.
Can I still obtain damages if I did not take out a business insurance policy?
If you do not have business insurance to protect you from potential lawsuits, both you and your corporation can be exposed legally. However, not having business insurance does not prevent you from counter suing or suing for damages.
How often should I have my business appraised?
It is important to have a business appraisal on your company in order to substantiate the values of your stock when there is a marriage, divorce, death or major event such as an acquisition or new partner coming on board. By having an appraisal, you will be able to determine the actual value at specific dates. By documenting appraising the business value at specific times you will be able to show the appreciation or the devaluation of your stock.
How much does a business appraisal in New Jersey cost?
The cost of a business valuation for a New Jersey Business Appraisal is based on the complexity of the valuation, the underlying records and experience of the appraiser. Typically, appraisals are based on hourly rates, so for example whether an appraisal takes 20 hours or 200 hours depends largely on what you want done. The cost can vary from as low as $10,000 to over $1,000,000 for complex litigation and or corporate acquisitions.

What are the steps to take when filing a business damages claim?

The first step in filing a business claim in New Jersey, is to take some time and think about what your ultimate goal is and realize that not only will it be expensive but time-consuming. Once you are sure you want to proceed with the lawsuit the next step is to discuss potential damages with a forensic accountant and have him recommend a suitable attorney in order to initiate the lawsuit.
How much can I expect to recover for my business losses?
Unfortunately, there is no guarantees that you will receive anything on a potential lawsuit involving a New Jersey business appraisal. Not only does it depend on the facts and circumstances, but the quality of the forensic accountant can have a drastic effect on the ultimate outcome. The most important thing is to find a qualified, experienced forensic accountant because ultimately the damages are dependent on his analysis and testimony.
What do I do if an employee is in breach of contract?
If there is a material breach of contract the first thing you need to do is to obtain documentation to back-up your claims. Once you are sure that it is a material breach and you have sufficient relevant evidence to demonstrate that the next step is to contact the forensic accountant to make sure the damages are actually substantial enough to warrant a lawsuit.
What is the best way to resolve an internal dispute among business owners?
Internal disputes between business owners occur often and can be very difficult, expensive and time-consuming to settle. It is important to take some time and think the facts through carefully. Rushing into a lawsuit will take time away from the business and be extremely expensive. It is usually best to have a trusted advisor or forensic accountant talk to each person separately and see if you can reach an amicable solution.
Can I be forced to sell my ownership interest?
When dealing with New Jersey appraisals and disputes between shareholders it is possible that the courts may require one party to sell their interest in the company to the other party. Typically, the stock is valued at fair value and that value is used to purchase the stock from the party that is going to be forced to sell their shares.
What is "specific performance"?
In situations where money damages are not adequate, the courts may rule that a party must perform based on the contract, which is typically called specific performance.
What is "eminent domain"?
Eminent domain occurs when the government or an agent takes possession of private property. When this happens the government or agency is required to have an appraisal and appropriately compensate the private citizen for his property.
What are "compensatory damages"?
Compensatory damages are usually awarded in civil actions where losses occurred that were the result of negligence of one party against another.

Am I responsible for damages to an employee who suffered a personal injury while performing work-related duties?

The damages will depend on the facts and circumstances, but every company is required to have a worker's compensation insurance policy in the State of New Jersey. These policies do cover many work-related injuries. However, employees can still sue for damages. Usually, the best defense against these damages is a good liability insurance policy.
Can I declare business losses when filing taxes?
Depending on your tax situation, you can file for business losses when filing personal taxes. Business losses can be deducted on your return if you meet certain requirements. If you are unable to deduct the current losses on your tax returns you can utilize a net operating loss carry forward for provision or net operating loss carry back provision.
What should I do if I suspect my partner of embezzling?
If you suspect your partner of embezzling funds from the company, it is important to obtain as much documentation as possible. It is best to hire a forensic accountant to assist with identifying documentation and how best to obtain the documentation. Once you have sufficient relevant evidence you can then confront the embezzler and seek remedies, which may include a complete forensic accounting of your company.
Find our more in this video: Detecting Employee Fraud
Contact Us Today to Learn More About New Jersey Business Appraisals

For more information on business appraisals, contact our firm online or by phone at (908) 322-7719 for a consultation.

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Our New Jersey business appraisals firm has the training, experience and judgment to provide sound, defensible economic damage assessments. Often business litigation involves economic damages. In some instances, companies seek compensation for one or more of the following: Lost business value Lost profits Breach of contract Lender liability claims Tortuous interference claims Theft of intellectual property claims Breach of covenants not to compete Insurance claims Patent infringements Trademark violations Fraudulent conveyances What are business damages?

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How to Calculate the Valuation of a Company

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How to Calculate the Valuation of a Company

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Whether you're looking to buy a business or sell your startup, you have to determine a price for it. There are several different ways you can determine the valuation of a company, including the worth of the assets, the valuation of similar businesses and the size of the projected future cash flow. Even if you hire someone to appraise the company and arrive at the valuation of the business, it's important to understand the methods they use.

Calculating the worth of a business is essential if you're buying or selling, but that's not the only reason.

If you're looking for financing, lenders, investment bankers and venture capitalists will want to know what company's worth.

If you're in a partnership and one partner wants out, you need to calculate the value of that partner's share of the company.

In a divorce, a valuation of the business may be required so you can divide up marital assets equitably.

Valuation of a company can be contentious. In the partnership scenario, for example, your partner may want a higher value for his stake than you think his share is worth. That's why objective valuation methods are useful.

When a company is publicly traded, it's relatively simple to come up with a market value using the stock price. Say the company has 500,000 publicly traded shares, and they're currently selling at $20 each. At that price, the worth of the total shares is $10 million.

This is the simplest way to set a price, but it's not the best. The share price is based on the perceived value of the company, which may not reflect the actual worth. The subjective side of stock prices is one reason they fluctuate. Using stock price solely for valuation is risky because:

Investors may base the share price on the anticipated success of a soon-to-launch new product. When the product debuts, it could flatline, and shares plummet.

The investors buying up the stock may not have made a serious valuation of the business.

Investors may anticipate future growth that doesn't happen.

Investors may assume that because the company grew last year, it will grow as much in the coming year. That doesn't always happen.

The stock price may be a response to temporary lousy news that doesn't reflect the company's underlying value.

If the company isn't heavily traded, the share price may not mean much.

Of course, if your company isn't publicly traded, and most small businesses aren't, you need to use a different method to establish the company's value.

Another method for setting a price is to compare one company to a similar one. If you're selling your business, for example, you can look for companies in your geographic area in the same industry and extrapolate your value from theirs.

One way to acquire these "comps" is to look for businesses that have sold recently and find out their sale price. Another is to pick a metric such as the price/earnings ratio, if the information is available.

Using comps has its limits, though:

You may not be able to find comparable sales.

If the sale data isn't recent, it may not reflect the current market value.

Few comps are identical. Figuring out how to adjust the formula to reflect key differences, such as one company having aging equipment or better-trained staff, may be tricky.

An asset-based appraisal is a method that doesn't require complicated math. Add up the value of your assets, subtract your liabilities, and you have the total value of your business. There are two approaches you can use:

Going concern. This approach assumes the business stays up and running and that you won't be selling off major assets.

Liquidation. This approach bases the valuation of the business on what you'd get if you closed it, sold the assets, and paid off your debts. This gives you a lowball valuation because liquidation sales don't usually bring the market price.

The drawback to an asset-based valuation is that a good business is worth more than the value of the equipment, real estate, inventory and other assets.

Discounted Cash Flow (DCF) is a much more effective method for establishing a company's value. Valuation of a company by DCF requires more number-crunching than asset appraisal. However, considering how much cash a business will generate in the future provides a much better view of the company's real worth.

The reason for basing the valuation of the business on cash is that ultimately, cash is what owners want and need. If your company's income is fabulous, but your cash flow is negative, you can't pay the bills, the landlord or your employees.

1. Calculate your future revenue. You can base this on a simple growth forecast or consider factors such as price, volume, competition and your customer base. The second option takes more work.

2. Project your expenses and your capital assets. Combined with revenue, this lets you determine your future cash flow.

3. Figure the cash flow's terminal value. For example, what will the total value of future cash flows be after five years?

4. Finally, use the terminal value to figure out the net present value based on standard formulas. If the company's cash flow yields $17.5 million in terminal value, that amount isn't something you can tap in the present to pay bills. You discount the cash flow to derive the value of future money in the here and now. That gives you a dollar figure you can set as the worth of the company.

DCF valuation has many advantages as a tool for the valuation of a company.

It doesn't require comps.

You can incorporate your assumptions and expectations about the future of the company into a DCF calculation.

You can use DCF with multiple scenarios as to how the future plays out.

While it takes a lot of math, you can use Excel to simplify some of that.

However, using DCF valuation does have some drawbacks.

You use assumptions about future growth and cash flow. It's tempting to make them overly optimistic.

Changing your assumptions can create radically different future cash flows.

Figuring DCF is a complex approach so that errors can creep in.

With Excel, it's easy to make a DCF calculation. Making an accurate DCF calculation, however, takes skill and experience on top of that.

Another method, though not widely used, is the valuation of a company based on what it would cost to start the same business from scratch. If you're looking at buying a manufacturing firm, for example, you would calculate what it would cost you to buy the equipment, lease the necessary space, purchase vehicles and hire a trained workforce. This gives you one way to measure the worth of an established company.

The drawback to this approach is that, like asset-based valuation, it doesn't consider the company's future earnings or cash flow.

As with cash flow, revenue gives you a measure of how much money the business will bring in. The times revenue method uses that for the valuation of the company. Take current annual revenues, multiply them by a figure such as 0.5 or 1.3, and you have the company's value.

You don't get to pick your multiplier. They're specific to the industry: 2.56 for household products and 1.39 for food processing, for example. Applying the times revenue method to a company with $360,000 in revenue generates a value of $500,400 in the food-processing industry but $921,600 in household products.

Rather than use the times revenue method by itself, business analysts may use it to set an upper limit on the value of the company.

Once you derive the valuation of a company, you may need to tinker with it. Most methods don't worry about the cash on hand or how the total of the company's debt. You should take that into account before setting a final price.

For example, suppose you want to sell your business, and the discounted cash flow method gives it a net value of $560,000. However, you have outstanding loans of $200,000. If the debts come with the company, the buyer may not be willing to pay more than $360,000.

If you have more cash on hand than you need for immediate expenses, you might want to raise the price of your business to reflect the cash surplus. Alternatively, you might work out a way to leave with the surplus and let the buyer keep everything else.

When it's time to make a valuation of a company, you may be better off if you don't fly solo. Even if you're good with finance and spreadsheets, valuation is a specialized skill set. A professional appraiser knows the right multipliers to use, the recent comps, the dynamics of the market and how to apply them to your unique business.

Equally important, professionals are objective. Whether you're looking at an exit strategy or preparing to buy your dream company, the skin you have in the game can cloud your judgment. Having a coldblooded professional assessment can steer you away from making a mistake.

A realistic valuation also speeds up the process. The appraiser knows how to price a company to sell in the current market environment.

Even within one method, such as the DCF valuation of a company, changing your assumptions can create a wide range of valuations. With multiple methods, the results are all over the map. An asset-based valuation may produce different results from calculating net cash value. Comps may show businesses like yours are selling for more than the numbers you crunched in Excel does.

If you're selling, you want to use a method that gives you the best price while staying realistic. If you're buying, you want the price as low as possible without the seller saying no. Beyond that, there's no exact science that says which alternative is the right one, so how do you decide?

Ask yourself why you need a valuation. If you're weighing the pros and cons of buying a company, you need to know if the purchase is profitable. If you're looking at closing your doors and selling everything off, your needs are different.

Are you an asset-heavy company? If your business owns a lot of valuable property such as land or important patents, the book value of the assets might be more than the discounted cash flow or times revenue method says you're worth.

What's the norm for your industry? It makes sense for manufacturers with lots of equipment to make an asset-based valuation. If you're providing professional services and use next to no equipment, assets are irrelevant.

If you're willing to put in the energy, there's no reason you can't try several methods to see what range of values result. This is standard for investment bankers: Check comparable companies and recent sales and then run a discounted cash flow analysis. Looking at the average of all three methods gives investors an idea of how much money they're comfortable putting into your business.

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How to Calculate the Valuation of a Company

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How to Calculate the Valuation of a Company. Buying a business can be a risky proposition; if you pay too much for a company, it might take several years before you recoup your investment, and in the worst case scenario, you might never make your money back.

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Robert A. Bonavito, CPA A Professional Corporation

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Robert A. Bonavito, CPA A Professional Corporation

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1812 Front St.
Scotch Plains, NJ 07076
908-322-7719
https://www.rabcpafirm.com