A Field Guide to Business Valuation

September 2022 PDF, Softcover (219 pages)

Casey Karlsen, Seth Webber

Business Valuation Resources, LLC

The authors of this new book have translated their experience in the field into a usable and cohesive guide for business owners.  Karlsen and Webber have extensive expertise helping business owners estimate, preserve, and increase business value – an audience typically without a background in business valuation. They employ simple analogies – all rooted in actual and numerous questions they have answered over the years – to help people understand complicated topics and are passionate about providing more people with a greater understanding of how businesses are valued. 

It is an ideal first book for people who want to learn how to perform valuations themselves. It does not contain all the details necessary to master the craft of business valuation but will serve as an excellent introduction to the topic. 

This publication and many more are also available for download with a subscription to the Digital Library or BVResearch Pro.
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Part I: Introduction and Overview

Chapter 1: Introduction
Chapter 2: Course Walk-Through: Overview of Business Valuations
    Course Walk-Through
    Simplified Valuation Model
Chapter 3: Reasons for a Business Valuation

Part II: The Valuation Foundation

Chapter 4: Standard of Value
Chapter 5: Premise and Level of Value
    Premise of Value
    Level of Value
Chapter 6: Economic Overview and Industry Analysis
    Economic Analysis
    Industry Analysis
Chapter 7: Subject Company Description
Chapter 8: Financial Statement Analysis and Benchmarking
    Financial Statement Analysis
    Adjustments to Financial Statements
    Trend Analysis
    Common Size Analysis
    Ratio Analysis
    Financial Leverage
    Cost Structure
    Additional Financial Metrics
    Selecting Industry Benchmarks
    Creating Industry Benchmarks
    Compiled Industry Benchmarks

Part III: The Market Approach

Chapter 9: Overview of the Market Approach
    Application of the Market Approach
Chapter 10: Guideline Completed Transaction Method Summary
Chapter 11: Guideline Public Company Method Summary
Chapter 12: Estimating an Appropriate Valuation Multiple
    Historical EBITDA Multiples
    Multiples by Industry
    Factors Affecting Multiples


Part IV: The Income Approach

Chapter 13: Overview of the Income Approach 
    Income Approach Variables
    Forecasted Income
    Discount Rate
    Application of the Income Approach
    Capitalization of Earnings Method
    Discounted Cash Flow Method
    Direct Equity Models
Chapter 14: Forecasting: A Practical Guide
    Top-Down Forecasting
    Bottom-Up Forecasting
    Practical Considerations
    Benefits of Forecasting
Chapter 15: Estimating an Appropriate Discount Rate
    Weighted Average Cost of Capital Formula
    Weight of Debt and Equity
    Cost of Debt
    Cost of Equity
    Risk Profile Factors to Consider
    Illustrative Example
Chapter 16: A Bird’s-Eye View of the Buildup Model
    Impact of Discount Rate Errors
    Buildup Model Components
    Risk-Free Rate
    Equity Risk Premium
    Industry Risk Premium 
    Size Premium
    Company-Specific Risk Premium
    Buildup Model Illustrative Example
    Tips for Working With Valuation Analysts
Chapter 17: Additional Cost of Equity Capital Models
    Buildup Model—Kroll Risk Premium Report (B Tables)
    Buildup Model—Kroll Risk Premium Report (A Tables)
    Modified Capital Asset Pricing Model     Conclusion

Part V: The Asset Approach

Chapter 18: The Asset Approach
    Strengths and Weaknesses
    Illustrative Example
    Additional Considerations

Part VI: Arriving at a Concluded Value

Chapter 19: Reconciliation of Multiple Approaches to Value
    Value Reconciliation
Chapter 20: Valuation Adjustments
    Discount for Lack of Control
    Discount for Lack of Marketability
    Application of Discounts

Part VII: Additional Valuation Content 

Chapter 21: (Way) Beyond the Numbers
    Additional Content
Chapter 22: Top 10 Errors in Business Valuations
    Error No. 1—Biting Off More Than You Can Chew
    Error No. 2—Inadequate Supporting Data
    Error No. 3—Excessive Typographical Errors
    Error No. 4—Incomplete Due Diligence
    Error No. 5—Incomplete Financial Analysis
    Error No. 6—Choosing an Inappropriate Method to Value the Subject Company
    Error No. 7—Contradictions Between Valuation Methods
    Error No. 8—Unrealistic Projections
    Error No. 9—Confusing Enterprise Value and Equity Value
    Error No. 10—Inadequately Supported Discounts for Lack of Control and/or                Marketability
Chapter 23: Key Steps for Business Sale Preparation
    Planning for the Exit Event
    Increasing Business Value
    Final Preparations
Chapter 24: Tips for Buying a Business
    Recent M&A Activity
    Tip  No. 1: Avoid Being Rushed
    Tip No. 2: Perform Rigorous Financial Due Diligence
    Tip No 3: Analyze Key Relationships
    Tip No. 4: Learn About the Employees
    Tip No. 5: Assess Key-Person Dependence
    Tip No. 6: Have the Seller Stick Around
    Tip No. 7: Don’t Assume the Good Times Will Last Forever
    Tip No. 8: Consider Tax and Legal Consequences
    Tip No. 9: Get Different Perspectives