Business valuation is a cornerstone of financial decision-making, particularly in transactions involving mergers, acquisitions, or financing, such as Small Business Administration (SBA) 7(a) loans for business acquisitions. Accurate financial information is the foundation of a credible valuation, ensuring that stakeholders—lenders, buyers, sellers, and appraisers—can make informed decisions. In scenarios where a division of a business … Continue reading The Critical Role of Accurate Financial Information in Business Valuation
Independent Business Appraisals
Asset Sale vs. Stock Sale: Legal, Tax, and Valuation Considerations in Small Business Acquisitions
Acquiring a business can be structured as an asset sale or a stock sale (or membership interest sale for LLCs). Both structures achieve ownership transfer but differ in legal mechanics, tax consequences, and valuation considerations. This white paper outlines these distinctions, details common inclusions and exclusions, and explains their treatment in business valuations, particularly for … Continue reading Asset Sale vs. Stock Sale: Legal, Tax, and Valuation Considerations in Small Business Acquisitions
EBITDA vs. Free Cash Flow: Why the Distinction Matters in SBA 7(a) Business Valuations
Accurate estimation of a company’s cash-generating ability is critical for SBA 7(a) business valuations. While EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) serves as a proxy for operating performance, it does not represent Free Cash Flow (FCF). Misinterpreting EBITDA as FCF can inflate valuations and misguide lending decisions. This white paper examines the differences … Continue reading EBITDA vs. Free Cash Flow: Why the Distinction Matters in SBA 7(a) Business Valuations
Tax Affecting Income in the Valuation of Pass-Through Entities for SBA 7(a) Business Valuations
One of the most debated topics in business valuation is whether to apply tax-affecting when valuing pass-through entities such as S-corporations, LLCs, or partnerships under the income approach. While these entities do not pay corporate-level income taxes, omitting tax-affecting entirely often leads to flawed and overstated valuations. This paper supports the reasoned use of tax-affecting … Continue reading Tax Affecting Income in the Valuation of Pass-Through Entities for SBA 7(a) Business Valuations
The Treatment of Unreported Cash in Business Valuations: Why It Cannot Be Included in Free Cash Flow
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
Understanding the Difference Between Weighted Average Cost of Capital and Cost of Equity Capital in Business Valuation
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
Treatment of Rent in Business Valuations for SBA 7(a) Loans
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
Price vs. Value: Why They Are Not the Same in Business Valuation
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 in Business Valuation: Understanding Its Role in SBA 7(a) Business Acquisition Loans
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
Understanding Risk and Return in Closely Held Businesses: A Guide for SBA Lenders
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
Highland Global Business Valuations 