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The income approach takes into consideration the company's level of earnings using a capitalization rate, discount rate or
multiplier. Several income approach methods are frequently used. Each method requires a level of earnings and a conversion
factor to translate the earnings into a company value. Selecting the proper level of earnings - after-tax, pretax, and discretionary
or cash flow - and matching it with the proper conversion factor - discount rate, cap rate or a multiplier - is critical to calculating a
reasonable value.
Market Approach
The market approach sets a value based on the values of other businesses that have been sold. Setting the market value
involves researching the sale prices for similar businesses in a geographic area. In some cases, however, finding a company that
is similar in many ways to your company may be difficult.
Whatever your goal, you want a good advisor to help you assess the value of your company. A business owner should never
accept a computer-generated valuation or a one-size-fits-all approach when selling the business. And don't be impressed by the
person who presents the highest value - you may only be setting yourself up for failure during the sale process.
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Facts about Buying or Selling a Business:
Different types of buyers pay different prices.
Only the right buyer pays the right price.
No one pays more than they think a business is worth.
Different types of businesses will command different prices.
Buyers would rather start a business of their own than buy yours.
Buyers really want "all the right things to be wrong".
Sellers want 100% cash at closing. Buyers want 100% seller financing.
It is difficult to find competent advice and counsel when buying or selling a business.
Myths about Buying or Selling a Business:
Buy/Sell Business Expert
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