Financial Marketing, Inc. is the oldest and most established business brokerage in Las Vegas and has sold every category of business. We custom "We can package with a formal appraisal or use basic financials of your business" to demonstrate the value of your business and bring out all of the most positive elements for a qualified buyer. If you would provide 3 to 5 years of tax returns, a current year profit and loss statement, copy of leases and a list of equipment we then can prepare a preliminary package to show you the value of your business in black and white. Call for appraisal prices. Should you need a more formally appraisal then refer to “Business Appraisals” page of this website for more information.

We can provide a quality business valuation under a separate fee arrangement should you required a business valuation for partnership dispute, divorce, merger, divestiture or other valuation situation. There are three levels of reporting to include (1) Letter of Opinion, (2) Letter of Opinion with Background Financials, and (3) Letter of Opinion, Background Financials and Demographics. We can provide business consulting with an hourly charge.

1. Why do you need a valuation?
2. What is a valuation?
3. What is market value?
4. What is the term highest and best use?
5. Four general factors of value.
6. What are the assumptions of valuation?
7. Methods of valuation.
8. Why are financial records recasted?
9. Assembling the modular asset approach.
10. Capital stock asset pricing.
11. Information sources.
12. Qualifications of presentor.

*Raise money to grow the business?

Sources of Capital

• Banks and Lending Institutions
• Private Investors
• Venture Capitalist
• Friends and Family
• Customers
• Investment Banks
• Sell Stock in Your Company
• Cash Flows of Your Business

*Sale of business?

Reasons for sale

• Buyout of partners
• Divorce
• Retirement
• Health
• Lifestyle Change

A valuation is to estimate the market value of the subject property, as a going concern, as held in fee simple ownership, assumed free and clear of all liens and encumbrances.

"The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:"

A. Buyer and seller are typically motivated;

B. Both parties are well informed or well advised, and each acting in what he considers his own best interest;

C. A reasonable time is allowed for exposure in the open market;

D. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and

E. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

1. The reasonable and probable use that supports the highest present value of vacant land, improved property and/or business, as defined, as of the date of the valuation. Zoning is very important.

2. The reasonable, probable and legal use of land or sites as though vacant, found to be physically possible, appropriately supported, financially feasible, and that results in the highest present land value as if included as a separate asset of the business. The most profitable use.

(1) Utility is based upon a property's highest and best use, or its usefulness. (This factor is a "subjective value".)

(2) Scarcity Short supply tends to increase the value of a subject property.

(3) Demand The larger the number of people seeking the same property, the more it tends to increase its value. This factor is implemented by those people having purchasing power.

(4) Transferability The possibility to legally convey property.

(1) Going concern of the business. The subject business is a going concern and will proceed into the future given normal management policies and procedures utilizing the resources of the business and business environment. The value of the real estate is not a consideration of this report.

(2) General economic conditions. The overall economic conditions that prevail will not fluctuate greatly and although conditions cannot be predicted, that the business management will take measures to anticipate and respond to continue profitability of the overall operation.

(3) Conditions within specific industry. The overall degree of risk, stability and rate of growth and other factors will continue in this industry, which will make the services of the subject business in demand.

(4) Competition. The management will anticipate competition and be able to provide customers with services to maintain the profitability of this business.

(5) Management stability. The management will be replaced by comparable skilled staff and continue the business using the same policies and procedures.

(6)Physical location stability. The subject business will remain in the location currently being used by the business for a continuity of service to their customers.

(7) Valuation procedure. The valuation procedure attempts to analyze the earning power of the company and the ability to convert this earning power of the company into value. Earning power is related to the rate of return expected in the financial markets for various types of investment alternatives, with consideration given to past history, expected growth rates, and risk of the business.

(8) Accuracy of business records. The business records provided for this valuation are accurate, correct and are in form and content for which is required by Generally Accepted Accounting Principles (GAAP).

• Comparison(Market value)Approach
• Cost (Liquidation Value)Approach
• Income Capitalization Approach
• Modular Asset Approach
• Capital Asset Price Model (CAPM) Approach
• Other Discounted Cash Flow (DCF) Approaches

Comparison (Market Value) Approach:

This approach is considered unacceptable in business sales. This method requires that the evaluator find three or four recent sales of businesses similar in size and location. This is at best a difficult task. There are no two businesses exactly alike. In an attempt to qualify the sales information gathered there is a multiple regression analysis method that may be used to measure the relationship between three or more variables, this approach could make results questionable. While the income approach is the core of the valuation theory actual market transaction data can provide compelling empirical evidence of value.

Cost Approach:
This approach is regarded as a disadvantage in business opportunities. First, a determination of replacement cost, including the cost of all furniture, equipment, leasehold improvements, inventory, liquor license, and so forth, less depreciation. Where real estate is part of the business, calculate building replacement cost, less depreciation, plus land value. This method ignores subjective values such as location and good will. Good will factors carry significant value in business opportunities. The small closely held business usually has a good will factor based on the owner’s service, personal integrity and overall ability for the business to survive into the future.

Income Capitalization Approach:
This is a questionable approach in business sales. The net profit is calculated by determining gross income and subtracting operating expenses. Then, the net profit divided by the capitalization rate equals the value of the property. This method has not been the most accurate method for comparing business opportunities since expense, net profit, and capitalization rate information has not been derived from the same set of guidelines. Also, the capitalization rate applies to only a single return flow to present value. This can only be determined by adjusting each business profit-and-loss statement before applying the capitalization rate formula. This method does not take into account such factors as goodwill, owner's salary, depreciation, personal expenses, and service debts.

Modular Asset Approach:
The valuation of closely held businesses is reduced to a fairly simple process. The problem is one of gathering accurate facts and reducing this information to basic comparable factors. These factors may then be evaluated using a formula to establish the "Selling Price". First of all, normalize or recast the business financial statement figures. There are two steps to this process:

Step One:Establish realistic "Net Profit". "Net profit" may be defined as "gross sales" less "business expense", which is the net income before:

• debt service income tax
• equipment rental manager's salary
• depreciation owner's salary
• amortization personal expenses

To determine "net spendable cash" for the buyer, add back the buyer's debt-service payments to see if his or her cash flow is positive or negative.

Step Two: Establish "Selling Price". "Selling Price", on the true value of the business may be defined as asset value plus good will value. The "asset value" may be defined as the total value of equipment, fixtures, leases, franchise, and any other tangible items installed, less depreciation (i.e. market value). "Good will value" may be considered "recast net profit", less return on asset investment multiplied by a risk factor. As with any rule of thumb method of determining value care must be taken concerning an asset base which is not in balance to the category or type of business. This means that in most types of business, for example, it would not be advisable to have a million dollars worth of inventory to generate $30,000 Net Operating Income annually with other factors being equal.

The investment in good will is determined in part by selecting a "risk factor," using the scale shown here. Selecting a risk factor is somewhat subjective within the guidelines indicated on the risk factor scale. Since each business is different, each factor should be evaluated separately to determine an overall risk factor applicable to the business being valuated. These factors include (but are not limited to): The skill and training a buyer would need to take over operation of the business and the type of business, i.e. how technical it is. The number of potential buyers available to buy such a business.

The art of the recasting the financial statements becomes most important. The knowledge and experience of the appraiser comes into play in determining the items to be adjusted and by how much.

The goal of this method is to determine the value of the business by using the net cash flows expected over the life of the business discounted at an appropriate rate.

Note: this is not to be confused with a capitalization rate most generally used for commercial income properties.

The location of the business and character of the neighborhood are factors. The number of years the business has been established is a factor. A prime factor is the number of customers who return to do business each year.The age and condition of the building are factors.

The return of investment in good will, i.e. how long it will take for the buyer to get his or her money back is the primary factor.

Example of general risk factor

Scale from: 1.0 to 3.0

1.0    1.4    1.8     2.2    2.6    3.0    1.2     1.6    2.0    2.4    2.8

Risk & Skill:    High     Average    Minimal

Training:    Years    Months     Weeks

Type of Bus:    Mfg    Retail     Sandwich shop

Lab    Restaurant    Hotdog Stand

Machine Shop    Liquor Store    Beer Bar

Elect Shop    Auto Parts Ice    Cream shop

Assbly Plant    Bicycle Store     Hamburger stand

Med. Lab    VarietyStore    Billiard parlor

Engineering    Hardware    Snack bar

Buyers Pool:     Few    more     many

Return of Investment in (Good will):    1 year    2 years    3 years

RULE OF THUMB:

The range of Return of Investment (ROI) for small closely held businesses is within a range of one year to three years or to put it another way, an annual return of from 100% to 33.3% annually. Remember,  businesses do not appreciate in value as does real estate. A business is worth what the business makes at the bottom line and what someone will pay for that income stream.

Business Estimated Fair Market Evaluation Chart

The estimated selling price is calculated as follows:

1. Total all business assets

2. From the annual "true net profit" deduct 10 percent of the total asset value. (This represents a fair annual return on the asset investment), if applicable.

3. Multiply the result by the previously determined risk factor to establish the value good will.

4. Add the total asset value to the good will value and the result is the estimated true selling price.

The asset pricing model (CAPM) is part of a larger body of economic theory known as capital market theory (CMT). CMT also includes security analysis and portfolio management theory, a normative theory that describes how investors should react in selecting common stocks for their portfolios, under a given set of assumptions. In contrast, the CAPM is a positive theory, meaning it describes the market relationships that will result if investors behave in the manner prescribed by portfolio theory.

The capital asset pricing model is important because businesses and business interests are a part of the overall investment opportunities available in the total capital market. The determination of the prices of businesses is subject to the same economic forces as other investments.

The components of the Discount Rate Applicable to Expected Net Cash Flow Available to Common Equity. The discount rate converts all of the expected future return on investment to an indicated present value. In contrast a capitalization rate converts only a single return flow number to an indicated present value.

"Risk-Free" Rate –Usually 20-year, 5 year, or 30 day U.S. Treasury obligation yield available as of the valuation date. Example 7.26 from the 20 year U.S. Treasury bond yield

Equity Risk Premium -  Data available from Ibbotson Associates based on S&P 500 stock returns over income yields on 20-year, 5 year, or 30-day U.S. Treasury instruments rates Example 7.0 X 1.20= 8.40 Modified by beta rates.

Impact of "size effect" on risk - Addition to the discount rate to reflect additional returns of smaller companies especially small stock companies Example 4.0

Specific Risk - Matter of judgement May be based on ratio analysis of subject compared to industry averages or specific guidelines concerning depth and quality of management, competitive position, etc. Example (1.0)

Total Discount Rate…………………………7.26 + 8.40 + 4.0 + (1.0) = 18.7

This discount rate is applied to the asset basis of the common stock or other assets to determine the net present value of the future income streams.

So, How do I maximize my business value?

Organize your business and records for the valuation.

5 years tax returns, P&Ls, Balance Sheets, List of Assets, History of company (The Good, the Bad and the Ugly).

Provide ample time to allow for a full understanding and analysis of the business. Start Early!

Understand where the value is derived.(Cash Flows) Maximize!

Shape and trim assets to match cash flows. Bring the business into balance.

Use an experienced appraiser.

• Annual Statement Studies, Robert Morris and Associates
• S & P Analyst's Handbook, Standard and Poors
• Troy Financial Ratios
• IRS's Corporate Source Book
• Buying and Selling Business Opportunities, American Business Consultants, Inc.
• Buying Or Selling a Business, James M. Hansen
• Basic Business Appraisal, Raymond C. Miles
• Residential Cost Handbook, Marshall and Swift Company
• The Appraisal of Real Estate, American Institute of Real Estate Appraisers
• Fundamentals of Real Estate Appraisal, William L. Vintolo, Jr.
• Modern Real Estate Practice, Fillmore W. Galaty
• Valusource Pro, Financial Consulting Series VS3-S1444
• Mergers & Acquisitions, A Valuation Handbook, Joseph H. Marren
• SEC Manual, Coopers & Lybrand, Seventh Edition
• The Art of M&A, A, Merger Acquisition Buyout Guide, Stanley Foster Reed & Alexandra Reed Lajoux
• Valuing A Business, The Analysis and Appraisal of Close Held Companies, Pratt, Reilly, Schweiths

,CMG, President, Corporate Broker and Owner FINANCIAL MARKETING, INC.

Website: http://www.fminevada.com

3450 E. Russell Road, Suite 104

Las Vegas, NV 89120

Phone: (702) 731-0030

Fax: (702) 731-0094

Professional Licensed Nevada Real Estate Broker

Designations: License Number 06750

Certified Business Opportunity Appraiser,

License Number CF:0085

Clark County Business License,

License Number 044519-685-4

President and CEO;

Financial Marketing, Inc.

License Number 000147-684-4

President;

R.W. Burley Enterprises

Business Consultant since 1970

(Inventory, Manufacturing, Operations Consulting)

Affiliations:

• American Management Association (1970)
• Commercial Marketing Group, Marketing Chair (1993)
• International Business Brokers International (1993)
• American Entrepreneur Association (1971)
• Nation-List Independent Associates (1983)
• American Production & Inventory Control Society
• Rotary International (1978)
• Ohio State Alumni Association (1963)
• Aircraft Owners & Pilots Association (1984)
• President's Associates UNLV (1992)
• Property Line Commercial (1993)

Formal Education:

Ohio University, Athens, OH

Bachelor of Science Degree

University of California at Sonoma, CA

Graduate Studies, Business Management

University of Nevada at Las Vegas

Accounting Course Work

Educational Dynamics Institute

Licensed Nevada Real Estate Broker

Resume:

President & Commercial Broker; FINANCIAL MARKETING,INC.

President & Commercial Broker; A:1 BUSINESS SPECIALISTS

Vice President & Broker; A:1 J.O.B.S.,INC.

Manufacturing Manager; TEGAL CORPORATION (Div. Of Motorola)

Materials Manager; RAYTECH, INCORPORATED

Inventory Control Manager; OPTICAL COATING LABS,INC.

Pharmaceutical Representative; ABBOTT LABORATORY,INC.

Production Control; LINE MATERIAL CORPORATION