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               DANIEL CULLINANE CPA                                                              Phone:          732-516-1648

                           Certified Public Accountants                                                                                        FAX               732-516-9778

                               328 Amboy Ave, Metuchen NJ   08840                                                              




The cost of something does not necessarily determine it s selling price. This is true in a rapidly changing market which is highly affected by technological changes or variances in supply and demand.  This is especially true if a company is very young and has not yet established enough of a track record to make a confident analysis  of it future performance.

Book value is a figure that different businesses have arrived at some more or less common set of rules within the scope of generally accepted accounting principles.  Each asset or liability number that is a component of book value as shown in the financial statements represents a specific set of obligations that can be identified in detail by referring to the company's records, assuming the bookkeeping is complete and accurate.

Book value provides the most convenient starting point for an asset value approach to the valuation of a business interest.
The nature and extent of adjustments that should be made to book value for the business valuation depend on many factors. One is the purpose of the valuation. Another is the availability of reliable data.

The cost approach is used when the income stream generated by the business does not adequately reflect the value of the company.


The Market Approach to valuing a closely held non traded company involves comparing the Subject  Company to counterparts engaged in the same or similar lines of business.  However, similarity in size, methods of operation, markets and customers served projected growth in sales and earnings are important for reliable market approach results.  Since the IRS and USPAP appear to prefer the Market Approach to value determination, it is the Daniel Cullinane method of choice.

The market approach is based on third party verifiable transactions.  Successful useage of this approach requires that the analyst have access to a large data base of arms length transactions involving companies similar to the subject company. Information on sales  of comparable companies can be difficult to obtain for parties not privy to the transactions.  When such data is publicly available, the market approach is the most credible and understandable approach of the three.

The market approach is easy to understand, credible and commonly relied upon.  However, to the extent a company is exceptional value as indicated by the market approach will differ from the fair market value.


Revenue multiples have been a favorite for many analysts and business brokers over the years for two primary reasons. First, it is very east to calculate. One simply multiplies the revenue by the revenue multiple for a given industry to arrive at the indicated value. Second, revenue is fairly easy to determine and is a single figure that usually requires adjustments.  The most obvious problem is that two companies in the same industry with equal revenue but different earnings will be valued equally, even though the earnings benefit to the owner would be drastically different.


Multiples of earnings are usually the best way to measure the value of a particular business. Businesses exist to provide earnings to their owners, shareholders or members.  The only truly neutral measure of earnings is SELLER DISCRETIONARY EARNINGS (SDE) because it is the only measure of earnings that removes the discretionary treatment of taxes, interest, depreciation. owners salary, health benefits and other nonsalary perks. SDE provides the true debt free, discretionary earnings available to the owners of the business.

Daniel Cullinane CPA analyzes valuation using both the multiples of revenue and multiples of earnings method.


It is important to note that under guidelines set by The Uniform Standards of Professional Practice, the Internal Revenue Service ruling 59-60, as well as most valuation societies. The evaluator is required to use all approaches for which reliable data is available and applicable.  The use of as many approaches and methods within these approaches is useful  to the extent that it will establish a range of values for the entity being appraised.

Revenue Ruling 59-60 recognizes the fact that appraising is not an exact science, sound valuation will be based upon all relevant facts, but the element of common sense, informed judgment and reasonableness must enter into the process of weighing those facts and determining their aggregate significance.


The asset value method is used to determine a minimum value rage for a business.  This amount represents the estimated market value of all tangible assets. This method does not include the value of salable inventory.

Asset value must not be determined on the basis of book value or an asset's worth in its current application but must consider replacement value, including all installation and testing costs. The upper and lower asset values are determined based on the accuracy of the asset data that was provided by the client


This method takes into account the critical factors which encourage or discourage a potential buyer in investigating and or purchasing this business.  Internal formulas are used to compare subject company to other companies of similar size, in the same industry.


This factor weighs the possibly of market saturation, volatility of the industry, predicted survival for an established business and the future stability of profits.


This fact quantifies the buyer's motivation to buy on status, visual appeal, profitability risk and skills required.


This factor places value on the size and consistency of the client customer base


This factor places value on the company's systems and processes that are in place to generate income and control expenses.


This method of valuation is purely a financial model.  Expenses are deducted from revenues to determine cash flow.  Deductions are then made for the owner's salary and depreciation.  The result is discretionary cash for debt service.

The maximum debt service this business could given the current level of discretionary cash is calculated based on an assumption of the number of years financed and an interest rate.


This method is based on pricing formulas and rules of thumb that have been developed for a specific industry. Most of these rules of thumb are based on multiples of revenues or multiple of earnings.


This method is based on comparing the business being valued with similar businesses that have been sold. Since revenue numbers are usually more accurate than net income numbers, I calculate a weighted intangible price to revenue ratio, based on previous business sales, and then calculate

an intangible value to which I add back to the company's assets to arrive at a total value.


This method is the average of all of the previously described formulas based on the theory that a diligent buyer would rely on more than one of the previous formulas.  As averaged value derived from all of the formulas should represent the actions of a reasonable buyer











email dcullinanecpa@yahoo.com


A business valuation is an opinion of the value of the business based on our experience, training and integrity. In reaching a conclusion. comparison of businesses usually involves adjustments due to the individuality and uniqueness of each business.

Being an opinion of value, the business valuation cannot be guaranteed, nor can it be proven. The valuation can, however be substantiated and the final opinion is the result of a thorough professional analysis of a large amount of data. the valuation must not be considered absolute but should be used as a basis of negotiations between concerned parties, whatever their interests.

Our valuation methodology will be in compliance with IRS Revenue Ruling 59-60. The purpose of the revenue ruling is to outline the general approach methods and factors to be considered in valuing shares of the capital stock of a closely held corporation.

The regulations define fair market value as he price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parries having reasonable knowledge of relevant facts.

A determination of fair market value, being a question of fact, will depend upon the circumstances in each case. No formula can be devised that will be generally applicable to the multitude of different valuation issues.

The fair market value of stock will vary as general economic conditions change from normal, to boom or depression . Valuation of securities is, in essence, a prophesy as to the future and must be based on facts available at the required date of appraisal.

Per the Internal Revenue Service the following summarizes the key factors to consider:

1) History and the Nature of the Business

2) Economic Outlook

3) Book Value

4) Earning Capacity of the Enterprise

5) Goodwill and Intangible Assets

6) Recent Stock Sales

7) Dividend Paying Capacity of the Enterprise

8) Market value of comparable companies.


Balance sheets will be obtained for two or more years. Income Statements will be obtained for 5 years if available. These statements will be analyzed to assist in the valuation process.


The single most important market factor to impact the value of a business is the supply and demand of an equally desirable substitute that is available in the market place.  According to the principle of substitution, the value of a a business tends to be determined by the cost of acquiring an an equally desirable substitute.  A buyer will pay no more for a business than the cost of acquiring a similar business.  This concept is the basis of fair market value and is the overriding methodology we use.

There are three approaches generally used to determining the value of any business:

  1. The cost approach, which considers the cost of purchasing or reproducing the assets of the business.
  2. The income approach, which is a financial analysis consisting of capitalizing an income stream based on the cost of money and a risk rate that reflects current market conditions
  3. The market data approach, which values the business based on current sales in the market place for the same or similar business.












email dcullinanecpa@yahoo.com