In business valuations—particularly for SBA 7(a) loan purposes—calculating free cash flow must be based on verifiable, legally reported financial data. A frequent misconception among small business owners is that a valuation should consider unreported (i.e., "off-the-books") cash receipts. However, incorporating unreported cash into a business valuation is improper, unethical, and legally indefensible. Not only would … Continue reading The Treatment of Unreported Cash in Business Valuations: Why It Cannot Be Included in Free Cash Flow

In the context of business valuation, particularly for closely held or small businesses, the Weighted Average Cost of Capital (WACC) and the Cost of Equity Capital (Ke) are fundamental elements of discounting future income streams. Although these two rates are often used interchangeably or confused in practice, they serve distinct purposes and reflect different risk … Continue reading Understanding the Difference Between Weighted Average Cost of Capital and Cost of Equity Capital in Business Valuation

In SBA 7(a) business acquisition transactions involving both a business and its real estate, distinguishing between the business enterprise and real property valuations is critical. This white paper addresses the misconception that rent can be excluded from business valuation cash flows when real estate is purchased or owned by the company, a practice that conflicts … Continue reading Treatment of Rent in Business Valuations for SBA 7(a) Loans

In business acquisitions, "price" and "value" are often conflated, creating confusion among stakeholders. For SBA 7(a) lending, distinguishing fair market value (FMV) from the negotiated transaction price is critical to ensure compliant financing and informed decisions. This white paper explores the differences, their causes, and their implications for objective SBA 7(a) valuations. Defining the Terms … Continue reading Price vs. Value: Why They Are Not the Same in Business Valuation

Goodwill, often misunderstood in SBA 7(a) loan underwriting, represents the value of a business exceeding its identifiable net tangible assets, driven by future economic benefits. This white paper explains goodwill calculation, scenarios yielding zero goodwill, and SBA 7(a) regulations, emphasizing the capitalization of earnings method for robust valuations. Lenders must ensure goodwill reflects fair market … Continue reading Goodwill in Business Valuation: Understanding Its Role in SBA 7(a) Business Acquisition Loans

In SBA 7(a) lending, evaluating the risk and return of closely held businesses is critical to ensuring sound loan decisions. Unlike publicly traded investments, closely held businesses present unique risks—illiquidity, owner dependence, and lack of diversification—that demand a tailored approach to valuation and underwriting. This white paper explores how to measure return using net cash … Continue reading Understanding Risk and Return in Closely Held Businesses: A Guide for SBA Lenders

In business valuations for SBA 7(a) lending, the premise of value plays a pivotal role in determining how a company is assessed. The two primary premises of value are the going concern and liquidation premises. This white paper explores the conceptual differences between these premises, their implications on valuation methodology, and their application in SBA … Continue reading Going Concern vs. Liquidation Premise of Value in SBA 7(a) Business Valuations

Relocating an established restaurant in an urban U.S. market is a complex endeavor that can significantly affect the business’s valuation. Whether the restaurant is an independent eatery or part of a franchise chain, moving to a new location introduces operational disruptions and financial uncertainties that valuation professionals must carefully consider. This white paper analyzes how … Continue reading The Impact of Restaurant Relocation on Business Valuation

Marketability—the ability to convert an asset to cash quickly with minimal value loss—is a critical factor in business valuation. Privately held companies, lacking public market access, often require a Discount for Lack of Marketability (DLOM). While commonly associated with minority interests, DLOM is also relevant for controlling interests, though its application is more nuanced. This … Continue reading Discount for Lack of Marketability in the Valuation of Controlling Interests in Privately Held Companies

Leasehold improvements—such as customized build-outs or interior upgrades made by a tenant to a leased space—are a common feature of business operations, especially in retail, healthcare, and food service sectors. But when it comes to valuing a business for acquisition or SBA lending, how should these improvements be treated? This white paper explores the nature … Continue reading Leasehold Improvements in Business Valuation: Sunk Costs or Transferable Value?