I prepared a case study of a business valuation of a general contractor with a valuation date of June 30, 2020 which is published in the Value Examiner as, “From Forecast to Value – Business Valuation During Covid-19.”
A forecast provided by management was analyzed to evaluate the usefulness and veracity for use as a base line cash flow in the business valuation. The projection showed rapid growth but unfortunately, as is common in small and micro business valuation, the forecast was not terribly useful and was not likely to be accurate enough to use in a discounted cash flow model as the income stream was too speculative. For that reason reducing the cash flow to closer to the historic average cash flow was a necessary adjustment made in valuing the company.
The Company also had a weak balance sheet. Strong balance sheets provide stability during economic downturns as general contractors can be highly cyclical. This weak balance sheet was a reason to reduce the multiplier or increase the capitalization rate reducing business value due to high risk of the projected cash flow not being met even after adjustment.
Other concerns and adjustments were reviewed in the article. The complete article is available here.
This article is the first to be published in a new column appearing every other issue called, “Size Matters, Valuation of Small and Micro Businesses”. I am honored to be asked to write this column for The Value Examiner.
The book, “The Art of Business Valuation, Accurately Valuing a Small Business” has 400 pages covering many professional judgement, calculation, standards, and other important valuation issues along with access to sample reports, calculators, and checklists downloadable from the web. This will be the one book you will reach for if you value or rely on valuations of micro or small businesses with revenues under $10 million. The book published by Wiley is available at your preferred bookseller. To Buy from Amazon Click Here
Greg Caruso, JD, CPA, CVA, the author of “The Art of Business Valuation, Accurately Valuing a Small Business” 2020 published by Wiley is always available to prepare (or review) business valuations for all purposes and situations. firstname.lastname@example.org
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