FINANCE DR - 100% ORIGINAL & A+ QUALITY

RESPOND TO DISCUSSION RESPONSES ACCORDINGLY (160 WORDS EACH)

LD1. Making pro forma adjustments to a comparable company's financial statements is often the trickiest part. It requires normalizing the financials to adjust for one-time / non-recurring items that temporarily distort earnings. Income statement items (denominator) should be adjusted for one-time or non-recurring items. For the valuation purposes, non-recurring items should not be included in financials (e.g. P&L statements, EBIT, EBITDA, Net income, etc). What advice would you offer someone who is negotiating to buy a business about determining its values?

Private Company Valuation. Retrieved from http://www.privco.com/knowledge-bank/private-company-

ZC1. Some main financial considerations in valuing an existing small business is looking at the value of their assets such as their inventory and equipment. These are things you would not have to purchase since you are not starting from scratch. This can probably be found on the company's balance sheet under tangible assets. Revenue is another approximation to use as some businesses are valued at a multiple of their revenue. The capitalized earning approach is also one of the ways to determine the value by looking at the return on the investment that is expected by an investor. Income stream should be looked at as well considering how much it may be worth to you.

LE1. Some of the financial considerations in valuing an existing small business are banks, lease financing, trade credit, or venture capital companies. Whether you determine that debt or equity financing is the best choice for your company, there are a number of alternative types of financing available. Depending upon the nature of your business, the financing may be a combination of debt and equity and may be tailored to fit the specific needs of your company.

IM1. Some of the main financial considerations in valuating an existing small business over a conceptual venture are the legal and the taxation perspectives along with the Cash Flow Statements, because it is important to understand which partnerships in the conceptual venture on what it has to offer along with the incorporations will determine what responsibility of the taxation part of the business. When I look at a business, whether it is a small business or conceptual venture, the first thing that I look at are the Cash Flow Statements, because I want to know if this business generating profitability. Second, that I look for is the legal standpoint of the business, in which tells me if this business can offer equity in the organization to establish an Initial Public Offering, in which leads to the third observation that I need to look at is the taxation standpoint of the business. When having a C-Corporation with stock shares, in some states a business owner must pay taxes on those shares plus what other required fees to keep the business in good standing. Also, C-Corporation gets double taxed, but an S-Corporation gets single taxed. Compared to a Limited Liability Company, it does not offer common stock options, but it the business owner can do his or her taxes through the business or through them personally. I think all of these aspects are very critical in valuing a business, because if one wants to invest in it. It must be a solid and profitable investment.

SG1. Compared to starting your own business, acquiring an existing business requires a larger initial payment (usually a lump sum). At the same time, banks are more likely to loan money to an established business with a track record rather a startup that only has a projections, which is a greater financial risk. You also forgo the costs of hiring employees, developing a customer base, and developing a product. It is also easier to know how the business will fare beforehand by looking at its current traffic. In the case of an existing business, cash flow will be immediate whereas for startups it is more unpredictable and often requires cash infusion from the owner. For most startups, the owners do not make money for the first three years. Thus, while the amount of cash that you have to put out in the beginning is less, it also means that you may have to forgo taking a salary for the first couple of years. This is not the case in an acquisition, where financing usually allows for a salary, loan payments, and business investment. Nonetheless, even in the case of an acquisition there are other fees to be prepared for other than the initial payment, including professional fees or places in the business that are under performing.

TC1.   Some of the main financial considerations to make when considering the value of a pre existing business over a conceptual venture is that it may be less expensive to get the preexisting business running smoothly than it would be be to start from scratch. One perk is that the business is already running, meaning all overhead costs and employee payouts have been established. This allows for a primary focus on expanding or better the business and asking employees about company morale in order to determine a better picture of where the value within the company already lies. Some company's put all their value on the product, others their employees, and the most successful business focus majority of their efforts on existing consumers. In considering the value of all these parts it allows entrepreneurs to deem what things are worth pouring more money into, or conversly deciding which things too much money has already went into, and how those finances can be tweaked or cut back for the sake of company's future financial growth.

DIS #2

ZC2. A market analysis involves researching the market you'll service and the need you will fulfill. Some of the components of a market analysis will include finding the annual sales of your market, for example how many cars were sold in your area last year, as well as the current size of your market. It also involves how much market share you believe you'll gain and what your pricing structure is and gross margin levels. The market analysis is an important part of your financial prospectus because if you are going to look for outside capital your market analysis will help to convince your investors that you know your audience and that there is a real need for your product or service in that market. You must show investors how they will make their money back with growth prospectives as well as a time frame in which your expectations will be met.

CG2. There are many things involved in a market analysis. A market analysis is research that helps a company determine who their business clients are, and it will provide the current market conditions in your industry. A market analysis will provide information on your competitors in that industry as well as what products or services they offer that are similar to yours. On top of that a market analysis can also provide info on your products or services regarding whether or not they are meeting customers needs and wants. A market analysis is an important part of a financial prospectus because it gives you valuable information on the overall industry. It allows you understand your target market or customer base. By doing this you will be in a better position to be successful in your industry.