Asset Based
Approach:
Next, we will attempt to determine an approximate market value for
the assets of your business. You will need your most current
financial statements and your most recent Depreciation Schedule. At
a minimum, you will need a complete list of all the Furniture, Fixtures & Equipment (FF&E).
There are two ways that we can go
about estimating the market value of your company's FF&E.
- Method 1: The first method will require that you estimate the cost of replacing
all of your FF&E with used
equipment, in approximately the same condition and of the same age as
your FF&E. By replacing, we mean the cost to purchase
used equipment, have it delivered, and installed at your place
of business. If you have a good feel for used equipment values, then
this method will work best for you.
- Method 2: The second method involves some estimation based on the cost
amounts shown on your company's balance sheet. If you aren't
familiar with financial statements, you need to know that items
shown on your balance sheet under the FF&E section,
represent the original cost of these items. So enter your FF&E
costs on your worksheet. Be sure to include FF&E
items that have been purchased but are not shown
on your balance sheet.
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| Method 1 - If you comfortable using Method 1, add up the amounts for the cost to replace all of your FF&E. To that number, add the cost shown on
your balance sheet for inventory, and add an estimate of the amount
of consumable supplies that you normally have on hand. Consumable
supplies include items that are used up in your normal course of
business, and include items like office supplies, cash register tape
and counter items, cleaning supplies, etc.
Method 2 - If you're using Method 2, then use your most recent balance sheet. For estimation purposes herein, you'll apply a percentage to the total cost of your FF&E. If the majority of the assets are less than 2 years old and in good condition, use 50-60% of total cost of these items. For older FF&E, 35-50% of cost. For vehicles, you can get a good estimate of their market values by clicking on "Get Trade-In Value" at the Kelly Blue Book web site.
Leasehold Improvements - The market value of your leasehold improvements will be the cost of the improvements minus any accumlated depreciation (net book value). If you or your company owns the business real estate, do not include any value for leasehold improvements. The value of these improvements would be included in the market value of the real estate, which would be an additive value later on, as we mentioned earlier.
The Example Calculations table below will give you an idea of how to calculate your estimated total FF&E value.
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| Method 2 - Example Calculations |
| Item: |
Cost New |
x % |
Estimated
Market Value |
| Office furniture (7 yrs. old): |
$40,000.00 |
x 35% |
$14,000.00 |
| Office & Shop Equipment (7 yrs.
old): |
$15,000.00 |
x 40% |
$6,000.00 |
| Machinery (2 yrs. old): |
$50,000.00 |
x 60% |
$30,000.00 |
| Vehicle value/s (from kbb.com): |
$22,000.00 |
|
$10,000.00 |
| Subtotal FF&E: |
$127,000.00 |
|
$60,000.00 |
| Add - Net Book Value of Leasehold Improvements: |
|
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$6,000.00 |
| Add - Consumable Supplies (at cost): |
|
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$5,000.00 |
| Add - Inventory (saleable, at cost): |
|
|
$65,000.00 |
Estimated Market Value of the
Assets
to be included in a sale of the business: |
$136,000.00 |
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For both methods - The number that you use for inventory should only include saleable inventory. Do not include any out-of-date, obsolete, or otherwise unsalable inventory in the number that you use for the amount of inventory to be included in a sale of the business. Your inventory number should represent the normal level of inventory on hand that is required to produce the revenues shown on your financial statements.
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| On the following page, we'll estimate the market value of your business. You'll need the Total Discretionary Earnings numbers from your earnings worksheet, and the FF&E value from the worksheet above. If you have less than 3 years of earnings, use the previous year in the first/second boxes. All three fields must have an earnings number in them.
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