Valuing Small Businesses and Professional Practices, 3^rd edition

by Shannon P. Pratt, Robert F. Reilly, and Robert P. Schweihs

Published by McGraw-Hill in 1998

For well over a decade, Valuing Small Businesses and Professional Practices has been the essential reference for performing accurate small business valuations. The book describes methods and procedures for valuing everything from “mom and pop” operations to businesses worth $5 million or more. An entire five-chapter section on valuing professional practices gives clear information on such issues as identifying and valuing goodwill and estimating the value of professional degrees and licenses. The book also contains chapters on valuations for specific purposes, such as estate and gift taxes, ESOPs, divorce, and litigation. Published by McGraw-Hill.

Table of Contents

Part I           Introduction: Understanding the Valuation Process

1.     Business Valuation Standards and Professional Associations

2.     Defining the Valuation Assignment

3.     Defining Value

4.     How Valuations Differ for Different Purposes

5.     Differences between the Valuation of Large and Small Businesses

6.     Comparison between Business Appraisal Practices and Real Estate Appraisal Practices

Part II          Analyzing the Company

7.     Adjusting the Balance Sheet

8.     Adjusting the Income Statement

9.     Comparisons with Industry Averages

10.  Analyzing Qualitative Factors

11.  The Buyer’s Perspective—Pro Forma Statements

Part III         Reaching the Value Conclusion

12.  Value Drivers

13.  Understanding Discount and Capitalization Rates

14.  The Discounted Economic Income Method

15.  The Capitalized Economic Income Method

16.  The Guideline Publicly Traded Company Method

17.  Public Company Data: What’s Available and How to Get It Easily and Inexpensively

18.  The Comparative Transaction Method

19.  Multiple of Discretionary Earnings (Seller’s Discretionary Cash) Method

20.  Gross Revenue Multiples

21.  Comparative Transaction Databases

22.  The Asset-Based Approach

23.  The Capitalized Excess Earnings Method

24.  Pass-Through Entities

Characteristics of the Organizations. Sole Proprietorships. Corporations. Partnerships. S Corporations. Limited Liability Companies. Pass-Through Entities. Continuity of Life. Centralized Management. Limited Liability. Free Transferability. Partnerships. S Corporations. Limited Liability Companies (LLCs). Comparing the LLC to the S Corporation. Changing the Form of the Business from Taxable to Pass-Through. Valuation Issues. Business Enterprise Value. Valuation of Minority Interests. Capitalization of Owner’s Distribution Method. Estimation of Appropriate Distribution Rate. Discounted Economic Income Method. Other Valuation Issues. Lack of Marketability. Summary. Bibliography.

25   Valuing Minority Ownership Interests

26.  Discounts for Lack of Marketability

27.  Valuation Synthesis and Conclusion

28.  Tradeoff between Cash and Terms

29   Making a Reality Check: Is the Value Estimate Reasonable?

30.  Common Errors

31.  Sample Case

32   Solution to the Sample Case

Part IV        Valuing Professional Practices

33.  Introduction to Professional Practice Valuation

34.  Adjusting the Professional Practice Balance Sheet

35.  Elements That Create Professional and Practice Goodwill

36.  Estimating the Value of the Professional Practice

37.  Sample Professional Practice Valuation Report

38.  Illustrative Examples of Professional Practice Valuation Methods

Part V         Valuations for Specific Purposes

39.  Buy-Sell Agreements and Estate Planning

40.  Employee Stock Ownership Plans in Small Companies

41.  Corporate and Partnership Buyouts and Dissolutions

42   Divorce

Part VI        Topics Related to Valuation

43   Valuing Intangible Assets

44   Buying or Selling a Business or Practice

45.  Working with a Business Appraiser

46.  Working with a Business Broker

Part VII       Litigation and Dispute Resolution

47.  Litigation

48.  Damages

49.  Arbitrating or Mediating Disputed Valuations

Appendix A            ASA Business Valuation Standards

Appendix B            Revenue Ruling 59-60

Appendix C           Bibliography

This book is available for $95.00 plus $6.95 shipping and handling (in the U.S.). Please fill out the order form and mail or fax to: Willamette Management Associates, 111 SW Fifth Avenue, Suite 2150, Portland, OR 97204, fax (503) 222-7392. Checks must be made out to Bizbooks.