Goodwill Valuation method

How to Value Inventory when Buying a Business  March 13, 2012 – 03:42 pm
ASIN 0471237531

Buying a business can be a complicated process. There are many areas that may cause the failure of purchase negotiations or cause animosity between the seller and buyer. One such area is the valuation of the business. Determining the worth of a business is a crucial and critical aspect of the buying process. If you buy a business that is overvalued, you are paying more than what the business is worth. On the contrary, if you buy a business that is undervalued, you will wonder if the business is failing.

Take the case of valuing the inventory of a business for sale. What should you include in the inventory? What valuation method should you use? In most industries, the value of inventory is above the asking price of the business for sale. Here are some pointers on How to Value Inventory:

1. The potential buyer and seller should agree on which valuation method to use for inventory. This could be by using a) the original purchase price or vendor’s invoice, or b) the current value of the items. The latter is the simpler and more realistic method. Using the original purchase price may not reflect the actual value of the assets.

2. The final count and valuation of the inventory should be done at the close of the sale, since the amount of inventory during the purchase process is usually different.

Source: American Business Finders

South-Western College Pub Business Analysis and Valuation: Using Financial Statements, Text and Cases
Book (South-Western College Pub)

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In this particular example I have seen on stock/equity valuation for a friend of mine, an certified Biz appraiser has used the 3 big valuations ..there is control premiums and minority discounts being applied depending on the stake you consider, as well as lack of marketability discounts. However, besides the basic economic and Strengths/weaknesses perceived of the company...there is no line-ite...verwhelming postives, ie money-making machine, long term relationships securing re-orders, the name/family history, goodwill, etc.
I had wondered if this was not included due to the valuation being down as a stock valuation since its an sales agency partnership via stock/s-corp. Its not like there are lots of tangible bricks/mortars as far as assets for a traditional accounting valuation.

Part 3

Ok, so how about non-punitive damages? First off, you brought up "goodwill," which you need to remember is something that sounds nebulous but actually isn't. "Goodwill" is a technical accounting term, and it represents a very concrete and definite sum of money. I'm not an accountant and I forgot all of the accounting principles my very determined Corporations prof tried to beat into me 30... party to stop breaching and do what he agreed to do in the contract. There's yet another pile of obscure rules about when this remedy is available (having to do, weirdly enough, with the split between Chancery Court and the Courts of Law in 18th-century England), but that's frequently an option in cases where it's impossible to put a dollar figure on the results of someone breaching a contract.

Yes, you should get a receipt

You don't need to send the receipt with your tax return, but it's good to have it in case you get a letter requesting you to provide proof of your non-cash donations. The valuation of non-cash items is based on their fair market value. In that case, you can go into a Goodwill or other types of second-hand furniture store (even eBay) to get an idea of the used valuation of your items. If you're d...00 worth of such items, you'll have to complete a supplementary schedule to include with your tax return. This schedule lists the pieces you donated, their values, and how you arrived at those values.
If someone gives you something, you have no obligation to return it. If you no longer have it, you no longer have it. Once an item is given away, there's no expectation that you will keep it.

The problem is the lawyer at issue

I am a business and finance attorney and have drafted loads of these agreements over the years. It is the knowledge, experience and participation of a good attorney that makes the cost either worthwhile or worthless.
A few examples of issues, from just a few provisions, may illustrate the process. When structuring a dispute resolution clause do you: (1) select just arbitration, med/arb, p...l the research and go through numerous forms to get the idea and know IL law well, then you could do this yourself. Note, if you do this yourself, the other members will use that fact to work against any interpretation you constructed. I guess the question is whether the time it will take to do a good job or the risk of not doing that worth saving a few thousand or not. Only you can decide that.

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