The preliminary report has use when a client desires the appraiser’s limited opinion. These valuations are designed for asset sales of closely-held businesses (less than $2,500,000 in annual revenues).

All Calculation of Value reports are structured in the following manner:

1. Introduction and Background
2. Financial Review and Projections
3. Valuation Methods - Market Approach AND Income Approach
4. Appendix

The Income Approach typically consists of either the Direct Capitalization of Earnings Method, or the Discounted Cash Flow Method. The former is used when earnings are projected to remain constant, while the latter is used when projected earnings will fluctuate for a certain number of years, and then stabilize. The appraiser uses his judgment based on historical financials, among other attributes.

The Market Approach used is the Direct Data Market Method which primarily derives Price to Sales ratios and Price to Sellers Discretionary Earnings ratios from comparable sales. The valuation considers historical and current financial performance and assumes that the business will be sold free and clear of any liabilities and debt.

The conclusion of the report is provided in a clear concise one page summary document. The report is usually 25-35 pages long, depending on the industry type.

According to the Institute of Business Appraisers (IBA), all Calculation of Value reports should minimally set forth in a manner that is clear and not misleading, the following:

• Identify the client, and set forth a description of the business
  enterprise, security or other tangible and /or intangible property being
  appraised.
• Form of the organization and if incorporated, the state of
  incorporation.
• The purpose (standard of value) of the appraisal.
• The function (use) of the appraisal.
• The definition of the standard of value that is the purpose of
  the appraisal.
• The effective (“as of”) date of the appraisal.
• The date the appraisal report was prepared.
• The report’s assumptions and limiting conditions.

All IBBA Members receive a $125 discount on all Calculation of Value reports. Please mentioned your IBBA membership when ordering a valuation.

As the Calculation of Value is the appraiser's limited opinion, the Economic and Industry Reviews are not included in the Preliminary Report. These are only included in the Summary Appraisals.

For a sample report, please contact Neal Patel, CBA.