Gregory R. Caruso - The Art of Business Valuation

1. Chapter 3
2. Chapter 4
3. Chapter 9

1. Chapter 4
2. Chapter 6
3. Chapter 7
4. Chapter 8
5. Chapter 9
6. Chapter 11
7. Chapter 13
8. Chapter 14

GREGORY R. CARUSO

This book, The Art of Business Valuation: Accurately Valuing a Small Business is an important guide and desk reference for valuing small businesses under $10 million in revenues. The vast majority of businesses are this size, yet most business valuation books, even the ones claiming to be for small businesses, do not address the unique factors impacting these small and very small businesses (also sometimes called micro-businesses). The author's business broker and valuation background provides a practical view of technical valuation issues from someone who has had to then find the number in the market. Yet this is not a book about price. It is about business valuation, namely, finding a business value for a specified interest as of a specified date to a specified standard of value.

My contribution to this work has been to provide insight and modification as an experienced practitioner, instructor, and mentor, from a more technical accounting business valuation view. The book's focus on small businesses does not mean that methods or techniques have been simplified or ignored. What has been provided is a thorough examination of how valuation methods really work, with the data that is really available for these businesses. Things like, how to work with less than perfect financial information, how to find a highly supportable multiplier using available data, when to use the market or the income method, how to meet valuation standards, and more. Included in the book are detailed figures, tables, explanations, and on the related website working Excel files and even sample reports that provide a framework that can be adapted to most business valuation needs.

Lastly, while an exact opinion may only be supportable and not be accurate, our methods, work product, and reports can and should be accurate. That is the standard we all must strive for every day in every engagement. That is why accurate is in the sub-title.

Clearly, the best a valuator can do is issue an opinion. Therefore, there will be varying viewpoints on the topics and methods presented here. In fact, there will be situations where the facts and assumptions would dictate that we use different techniques than the ones recommended here. That illustrates the importance of professional judgment. That is the Art of Business Valuation.

We find this variety of viewpoints and challenges to our thoughts to be exciting and invigorating. It makes business valuation better. With this view in mind, please contact us at . This way, we can all continue to learn, grow, and improve together.

Ronald D. Rudich, CPA/ABV/CFF, MS, MCBA, CVA/ABAR/MAFF, CM&AA, CMEA, BCA

My father was the CEO of a $750,000,000 revenue general contracting firm when he retired 25 years ago. With 20 jobsites under construction, he was king of just knowing where the problem wasand getting someone to solve itbefore it became a threat to the company. After all, large general contractors work on 5% or less gross profit. One bad job can wipe out a year's profits. Excelling in this environment, one of his favorite maxims was: I would rather be approximately right than perfectly wrong.

His maxim came out of jobsites full of technical engineers who each solved their system problems perfectly but with no regard for how the building as a whole would work. All too typical were pipes that were shown running through the structural steel that held the building up. What made this more difficult was the fact that often there was nowhere else for the pipes to go. This was offset by the more practical guys in the field who had to make it all work.

This tension between technical perfection and seeing the big picture still exists today in construction and it also exists in business valuation. It is all too easy to get lost in technical details. After all, business valuators tend to be technical people with extensive technical training. Being able to work between these two worldsthe technical and the practicalis the art of contracting for my father and the Art of Business Valuation for us.

In most approaches to business valuation, an equation or model is created where a company being valued is compared to other similarly known data. In the asset approach, it is other asset sales. In the market approach, it is sales of other businesses. In the income approach, it is investment options of investors.