Business appraisers will often refer to and use multiples of Seller’s Discretionary Earnings, or SDE, when discussing or calculating firm value.
Why Use Seller’s Discretionary Earnings to Value a Business?
SBA Business Valuation Guidelines in 2021
There are many different factors to consider when a business needs to apply for an SBA loan; the Small Business Administration lays out all of its requirements in its current Standard Operating Procedures (SOP 50 10 6). The document explains the specific requirements that are necessary when a business wishes to qualify for a loan.…
What are Seller’s Discretionary Earnings?
Seller’s Discretionary Earnings is a measure of the total financial benefit available to a single owner working in the firm on a full-time basis.
SBA Business Appraisal Guidelines
The Small Business Administration (SBA) provides extensive business appraisal guidelines in its most recent SBA SOP 50 10 5 (K), effective as of April 1st, 2019, with regard to business appraisal requirements for SBA-sponsored 7(a) loans. The entire SOP document is over 400 pages long; so, to make things easier for the reader, below we…
Business Valuation Approaches
What are the three main business valuation approaches? First, let’s start with ‘what is a valuation approach?’ A valuation approach is a process used to arrive at an indication of economic value of an owner’s interest in a business. The three most common valuation approaches are the income, market, and asset approaches. The income approach determines…
SBA Business Valuation Methods
When lenders value a business for an SBA loan, the Small Business Administration does not require that the business valuation include any specific business valuation method. However, the SBA does provide lenders a set of valuation methods that are termed “acceptable.” These acceptable SBA business valuation methods are summarized below: Gross Revenue Multiplier – This…
An SBA Business Valuation Calculator?
Frequently asked question: Is there an “SBA business valuation calculator?” Short answer: No, there isn’t. When I first saw the question, I thought “of course not.” The process of valuing a business is far too complex with way too many variables to be encapsulated in a calculator. However, a quick search shows that some companies…
How to Value a Small Business
Determining the value of a small, privately owned business is a challenging task. To do so properly requires skill, a lot of research, analysis, and a strong understanding of the business being valued and the space in which it operates. Unfortunately, the topic of business valuation is far too large to teach in a blog…
When is a business valuation required for an SBA loan?
When a borrower is seeking an SBA loan to fund a business acquisition, meaning there is a change of ownership, an independent business appraisal may be required. The conditions that trigger an independent appraisal are outlined in the current version of the SBA’s Standard Operating Procedures, SOP 50 10 5(H), in effect since May of…
Business Appraisal or Business Valuation?
So I’ve been asked if the work we do is termed a ‘business valuation’ or a ‘business appraisal.’ It is a good question; intuitively we all understand they both mean effectively the same thing. But after being asked several times, I wondered if there could be some trivial, technical difference between the two I wasn’t…
