Valuing Small Businesses and Professional Practices / Edition 3

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The classic bestseller on estimating the value of small businesses and professional practices is fully updated and enhanced. While continuing to take readers step-by-step through the valuation process, it now features timely new or significantly revised chapters on valuation for estate plans, employee stock ownership plans, and corporate partnership dissolutions/buyouts. Along with case studies, it also offers greatly expanded coverage of data sources and their availability to small businesses.

Beginning with the fundamentals of valuations, this essental guide shows you the differeence between small business and large business valuation

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Editorial Reviews

A guide to small business appraisal for owners, accountants, attorneys, brokers, appraisers, bankers, financial and estate planners, and business consultants. This revised and updated edition (first was 1986) maintains its coverage of the intricate details unique to small business valuation, while stepping through the entire valuation process. Beginning with the fundamentals, Pratt brings together both theoretical principles and generally accepted practices to provide a complete, balanced approach to the most effective valuation techniques. Includes present value tables, reprints of key revenue rulings (including 59-60), ASA business valuation standards, and expanded reference sources and bibliography. Annotation c. Book News, Inc., Portland, OR (
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Product Details

  • ISBN-13: 9780786311866
  • Publisher: McGraw-Hill Professional Publishing
  • Publication date: 3/1/1998
  • Series: McGraw-Hill Library of Investment and Finance Series
  • Edition description: REV
  • Edition number: 3
  • Pages: 1056
  • Product dimensions: 8.90 (w) x 11.30 (h) x 1.95 (d)

Meet the Author

Dr. Shannon P. Pratt is a managing director and one of the founders of Willamette Management Associates. Founded in the 1960s, Willamette is one of the oldest and largest independent valuation consulting, economic analysis, and financial advisory firms in the country. It has regional offices in Atlanta, Georgia; McLean, Virginia; Chicago, Illinois; San Francisco, California; and Portland, Oregon.

In addition to this book, Dr. Pratt is the author of Valuing a Business, third edition, with Robert Reilly and Robert Schweihs, and co-author of Guide to Business Valuation, seventh edition. Dr. Pratt holds a doctorate in finance from Indiana University. He is a chartered financial analyst and a fellow of the American Society of Appraisers (the highest designation awarded by that society). Dr. Pratt is also editor-in-chief of Shannon Pratt's Business Valuation Update, a monthly newsletter.

Robert F. Reilly is a managing director of Willamette Management Associates. He holds a master of business administration degree in finance from the Columbia University Graduate School of Business and a bachelor of arts degree in economics from Columbia College. He is an accredited senior appraiser (certified in business valuation), a chartered financial analyst, a certified public accountant, a certified management accountant, and a state- certified affiliate of the Appraisal Institute. Mr. Reilly serves in an editorial capacity for, and is a regular contributor to, such professional journals as The American Bankruptcy Institute Journal and The Journal of Property Tax Administration. As an appraiser and economist, he has testified both in domestic and international courts on well over 100 occasions regarding the valuation of assets, properties, and business interests, and regarding various economic damage issues.

Robert P. Schweihs is a managing director of Willamette Management Associates. He holds a master of business administration degree in economics and finance from the University of Chicago and a bachelor of science degree in mechanical engineering from the University of Notre Dame. He is an accredited senior appraiser of the American Society of Appraisers (certified in business valuation). Mr. Schweihs is a frequent speaker to professional societies and an author of articles on various aspects of business valuation. He is often called upon to testify in court on contested business valuation matters.

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Table of Contents

Pt. I Introduction: Understanding the Valuation Process 1
1 Business Valuation Standards and Professional Associations 3
2 Defining the Valuation Assignment 19
3 Defining Value 37
4 How Valuations Differ for Different Purposes 51
5 Differences between the Valuation of Large and Small Businesses 65
6 Comparison between Business Appraisal Practices and Real Estate Appraisal Practices 83
Pt. II Analyzing the Company 93
7 Adjusting the Balance Sheet 95
8 Adjusting the Income Statement 117
9 Comparisons with Industry Averages 133
10 Analyzing Qualitative Factors 149
11 The Buyer's Perspective - Pro Forma Statements 177
Pt. III Reaching the Value Conclusion 191
12 Value Drivers 193
13 Understanding Discount and Capitalization Rates 201
14 The Discounted Economic Income Method 235
15 The Capitalized Economic Income Method 253
16 The Guideline Publicly Traded Company Method 269
17 Public Company Data: What's Available and How to Get It Easily and Inexpensively 297
18 The Comparative Transaction Method 309
19 The Multiple of Discretionary Earnings (Seller's Discretionary Cash) Method 327
20 The Gross Revenue Multiples Method 339
21 Comparative Transaction Databases 349
22 The Asset Accumulation Method 365
23 The Capitalized Excess Earnings Method 401
24 Discount for Lack of Control 425
25 Discount for Lack of Marketability 445
26 Valuation Synthesis and Conclusion 477
27 Tradeoff between Cash and Terms 489
28 Making a Reality Check: Is the Value Estimate Reasonable? 503
29 Common Errors 511
30 Sample Case 533
31 Solution to the Sample Case 543
Pt. IV Valuing Professional Practices 557
32 Introduction to Professional Practice Valuation 559
33 Adjusting the Professional Practice Balance Sheet 569
34 Elements That Create Professional and Practice Goodwill 583
35 Estimating the Value of the Professional Practice 595
36 Sample Professional Practice Valuation Report 613
37 Examples of Professional Practice Valuation Methods 649
Pt. V Valuations for Specific Purposes 671
38 Buy-Sell Agreements and Estate Planning 673
39 Employee Stock Ownership Plans in Small Companies 699
40 Corporate and Partnership Buyouts and Dissolutions 713
41 Marital Dissolutions 721
Pt. VI Topics Related to Valuation 735
42 Valuing Intangible Assets 737
43 Buying or Selling a Business or Practice 759
44 Working with a Business Appraiser 775
45 Working with a Business Broker 793
Pt. VII Litigation and Dispute Resolution 805
46 Litigation 807
47 Damages 825
48 Arbitrating or Mediating Disputed Valuations 845
App. A General Resource List 861
App. B Revenue Ruling 59-60 865
Index 871
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