❗WACC is not the same as the cost of equity.And for SBA 7(a) lenders, understanding the difference can protect your deal. When a business has debt in the capital structure, you need to value it using the weighted average cost of capital (WACC)—not just equity rates. WACC reflects risk and capital structure.Cost of equity? Only … Continue reading 🧠 WACC ≠ Cost of Equity

⚠️ A BDO brought us in to review a $1.9M acquisition. Everything looked solid… until it didn’t. The seller's addbacks included:🚗 $26K in personal car leases💼 $15K salary to the seller’s spouse📣 $48K in critical marketing (not actually discretionary)🐾 And… $2,400 in “pet care” 🐕 Once we normalized earnings correctly, the value dropped by over … Continue reading 🚩 Red Flag Story: Addback Shenanigans

A buyer was told free cash flow was $480K. Our valuation said: not even close. We found: $72K in non-repeating COVID grants $34K in a one-time legal recovery $49K in “consulting fees” that were really recurring employee costs True free cash flow? Around $325K. A $1.7M price tag suddenly looked… risky. Deals get inflated fast … Continue reading 🚩 Red Flag Story: Owner Addbacks Gone Wild

Does SBA require a machinery & equipment appraisal? Short answer: NO. Under SOP 50 10 8, SBA does not mandate an M&E appraisal in most cases. It’s typically up to the lender. In some cases, lenders may request a separate M&E appraisal if: The equipment is used and collateral value needs to be documented The … Continue reading ⚙️ When You Do (and Don’t) Need an M&E Appraisal for SBA Loans

💰 Overpaying or underpaying the owner? Either way, the valuation will be off. Normalizing owner compensation is one of the most important steps in calculating free cash flow for SBA 7(a) deals. We use industry comp data to set a realistic salary—not what the buyer or seller wants to pull. ⚠️ Inflated salary = undervalued … Continue reading 🧠 Normalizing Owner Compensation

The SBA has specific valuation requirements. Must be performed by a qualified source Must be based on supported methods Must use the fair market value standard Must be consistent with good appraisal practice Takeaway: A compliant valuation isn’t optional—it’s mission critical. Knowing the SBA's requirements inside and out is part of lending well. Check out … Continue reading ✅ What the SBA Really Requires in a Business Valuation

🚨 Family members on payroll who don’t work there? That’s a valuation killer. We found: $38K to a retired uncle $21K to a daughter in college $12K to a spouse listed as “office admin” (but worked elsewhere full-time) These non-operating expenses distorted the true free cash flow. After cleaning them out, the value increased 22%. … Continue reading 🚩 Red Flag Story: Family Payroll Games

USPAP governs how valuation work is developed and reported. Though not required for SBA valuations, following USPAP helps ensure your appraisal is credible, well-supported, and auditable. Takeaway: Not all valuation reports are USPAP compliant. And not all SBA lenders know the difference. Check out our article and video on this topic!

📈 Multiples are just a shortcut. Not a value. Valuing a business based on “a 3x multiple” is like pricing a house based only on square footage. Real valuation = real analysis: Adjusted free cash flow Industry benchmarks Company-specific risks Working capital needs Multiples don’t close loans. Sound valuations do.

FIRREA sets the rules for federally regulated lenders—but most folks don’t realize it does not require USPAP compliance for business valuations. However, it does require supportable, well-reasoned opinions from qualified professionals. Takeaway: Know the difference between FIRREA, USPAP, and SBA SOP—each governs appraisals differently. Check out our article and video on this topic!