Know upfront how much your business can be financed. PreQual Process

The Problem

Overcoming barriers to closing deals

Prequalified appraisals can prevent deals from falling apart because they help you know in advance from lenders how much a business can be financed.

Nearly 50% of all deals fall apart at financing because lenders can only approve up to the value assessed by the underwriter's appraiser, and lenders typically resist accepting a broker's own BoV. The resulting valuation gap often leaves buyers unable to afford the business. Prequalified appraisals can prevent deals from falling apart because they help you know in advance from lenders how much a business can be financed.

Common Barriers to Closing Deals

BizWorth developed the PreQual Process to help business owners and their advisors in overcoming the most common barriers hindering owners from selling their business:  

  • Overvaluation: Sellers often overvalue their businesses, leading to unrealistic asking prices that can deter potential buyers and make it hard for them to obtain financing. BizWorth’s PreQualified Valuation Report helps brokers in establishing well-informed listing prices by considering both the company’s valuation and its loan eligibility range. This range indicates the potential loan a creditworthy buyer can secure through our national network of participating lenders, providing comprehensive guidance for pricing strategies.
  • Differing perspectives: Lenders usually don't factor in the same adjustments as those included in a Broker's Opinion of Value (BoV) when determining the loan amount for a buyer. This often leads to a gap between the sale price based on the BoV and the loan amount based on the lender’s appraisal. BizWorth’s PreQual Process™, consisting of two parts (Part A and Part B), delivers an integrated valuation process to be used by sellers, advisors, and lenders. Since both parts are conducted by the same appraisal company, brokers can confidently lead their clients through a smooth and efficient transaction.
  • Financing shortfalls: Financing shortfalls can occur when a lender's loan amount falls below the customary 80% to 90% of the negotiated sales price, potentially impacting the seller's expected proceeds. BizWorth’s PreQualified Valuation Report helps brokers and their clients in anticipating such shortfalls. By providing a comprehensive loan eligibility analysis, this report is crucial for predicting and addressing financing shortfalls, alerting brokers to the need for effective strategies to bridge the gap.
  • Limited access to financing: Often, brokers have limited access to financing as they typically have connections with only a handful of local lenders. The PreQual Process broadens financing opportunities for brokers and their clients by securing conditional approval(s) from a nationwide network of participating lenders.
The Prequal Process Breaking Barriers

the Prequal Process

Secure financing for what your business is worth.

Purpose of the PreQual Process

The purpose of BizWorth’s PreQual Process is designed to help business owners and their advisors secure financing for what a business is worth. Our aim is to improve the number of successful deal closures by facilitating a conditionally approved loan amount for creditworthy buyers during the listing phase, coupled with a certified business appraisal required by underwriting and the SBA in the financing phase of a deal.

What sets our process apart is the seamless integration of a two-part valuation process prepared by the same appraisal company, along with exclusive access to an extensive network of participating lenders who accept BizWorth’s appraisals when making loan decisions.

The Prequal Process Step by Step Process
Two-Part Valuation Report

BizWorth's PreQual Process encompasses a two-part process tailored to meet the requirements of owners, brokers, and lenders. Part A, the PreQualified Valuation Report, is initiated by the broker or owner and delivered early in the listing phase. This not only informs brokers and owners in establishing a well-informed listing price but also secures a "conditionally approved" status from participating lenders, enhancing the business's credibility and attractiveness to potential buyers. When a lender approves a loan amount within the loan eligibility range, brokers can display a "lender financing available" badge on various business listing services.

As the deal progresses, Part B, the Certified Business Appraisal, is ordered by lenders and leverages the data collected in Part A. This report, with a quicker turnaround and lower cost, ensures a smoother journey to financing, progressing the deal from conditional approval to closing.


A simple, easy closing process.

The PreQual Process by BizWorth delivers several key benefits to brokers, business owners and lenders throughout the transaction process.

Streamline Access to Financing

Part A and Part B of the PreQual Process™ work together to streamline access to financing through our extensive network of participating lenders. Because both parts are prepared by the same appraisal company, brokers can confidently guide their clients through a seamless and efficient transaction experience with our network of trusted lenders who accept BizWorth’s appraisals.

Part A, ordered by the broker or owner, provides a comprehensive analysis of the business's loan eligibility, giving insights into a creditworthy buyer's ability to secure financing. As the deal progresses, Part B, ordered by the lender, comes into play, aiding banks in meeting the stringent requirements set by underwriting and the SBA for extending a loan.

Asking Price Confidence

Part A of BizWorth's PreQual Process™ plays a pivotal role in instilling confidence in the asking price by leveraging a valuation report, prepared by a NACVA certified appraiser, that includes a meticulous analysis of loan eligibility. Through a detailed sensitivity analysis of different selling prices and the resulting Debt Service Coverage Ratio (DSCR), the process determines the business's potential for securing loans. This comprehensive assessment empowers brokers and owners to establish more informed pricing expectations, enhancing transparency and trust in the negotiation process. By leveraging these insights, brokers and owners can navigate discussions more effectively, leading to smoother negotiations and an increased likelihood of successfully closing deals.

Navigate Financing Hurdles

The PreQual Process™ assists brokers in navigating financing gaps with their clients by providing valuable insights into the loan eligibility of a business. Part A of the process conducts a comprehensive analysis of the business's financial health and determines its ability to secure financing. If there is a gap between the loan eligibility and the sale price, brokers are equipped with the necessary information to devise financing strategies to bridge this divide. By understanding the loan eligibility of the business upfront, brokers can proactively address financing challenges and explore alternative financing options, such as seller financing, contingency payments, additional cash down and/or negotiating with lenders for higher loan amounts. This proactive approach not only facilitates smoother negotiations but also increases the likelihood of closing the deal successfully. Ultimately, the PreQual Process™ empowers brokers and owners to navigate the financing process with confidence.

The PreQual Process Benefits

About the report

Two Parts, One Purpose

BizWorth’s PreQual Process consists of two parts, “Part A” and “Part B”, designed for streamlining the sale of a business from listing to financing.

Part A, the PreQualified Valuation Report, is ordered by the broker or owner and includes a loan eligibility range used by lenders to conditionally approve a loan amount within the range for creditworthy buyers. The loan eligibility range is determined based on a lender's perspective of the company's EBITDA, incorporating more conservative adjustments compared to those used for determining list price.

This report informs buyers and advisors with valuation information, aiding them in setting an informed asking price, attracting more qualified buyers, and expediting negotiation and due diligence. Concurrently, a national network of participating lenders receives the report as well as the company’s financials and/or tax returns to grant conditional approval for a loan amount within a loan eligibility range.

Part B, the Certified Business Appraisal, is ordered by lenders and designed to meet all requirements set by underwriting and the Small Business Administration (SBA), if applicable, for extending a loan.

Part A PreQualified Valuation Report

Part A - PreQualified Valuation Report

Typical Pricing: $3,999 - $4,500

Part A, the PreQualified Valuation Report, serves as a dynamic tool used during the early stage of listing a business for sale. This report, conducted by a certified appraiser, furnishes business owners, advisors, and lenders with a detailed valuation range based on market, income, and asset approaches.

Additionally, it provides key ratios benchmarked to industry standards, ensuring a comprehensive understanding of the business's financial health. A unique feature is the inclusion of a section on loan eligibility, featuring a sensitivity analysis of different selling prices and the resulting Debt Service Coverage Ratio (DSCR).

Part A not only aids in establishing a realistic asking price but also assists lenders with providing a “conditional approval" to business owners and their advisors, instilling confidence in the business's credibility.

  • Conducted by a certified appraiser with specialized knowledge and experience in business valuations, ensuring the highest standards of accuracy and reliability.
  • Provides a thorough valuation range based on three fundamental approaches: Income, Market, and Asset.
  • Features a dedicated section on loan eligibility, offering valuable insights for both sellers, advisors and lenders.
  • Includes a sensitivity analysis of different selling prices, allowing for a nuanced understanding of financing scenarios.
  • Provides a detailed examination of loan payment affordability to help brokers gauge a business's financial health and its ability to handle loan repayments
  • Includes key financial ratios benchmarked to the industry, offering insights into the business's performance relative to its peers.

Report Includes:

Valuation Summary

A concise overview of the business's estimated selling price and equity value, including key findings and insights from the valuation analysis.

Capitalization of Cash Flow Method

An Income Approach valuation method that calculates the business's value based on its expected future cash flows. It involves dividing the expected annual cash flow by the capitalization rate (discount rate minus the expected growth rate) to arrive at the valuation.

Market Approach

A valuation approach based on market multiples that are derived from transactions of similarly sized private companies.

Owner's Compensation Analysis

Examination of the owner's compensation to ensure it aligns with industry standards and is appropriately reflected in the business's valuation.

Asset Approach

A valuation approach that provides a valuation of the business based on the net value of the business's assets and liabilities.

SIC / NAICS Code Validation

Verification of Standard Industrial Classification (SIC) or North American Industry Classification System (NAICS) codes to ensure accurate industry classification for benchmarking.

Adjusted Financials

Includes adjusted financial statements to present a clearer picture of the business's financial performance, with adjustments made for one-time expenses, non-operating items, or other factors affecting data accuracy for valuation purposes.

Loan Eligibility

The prequalified loan eligibility analysis gauges the loan a creditworthy buyer can secure, capped at the higher of the business valuation or calculated loan limit. The analysis spans 5-year and 10-year terms, incorporating different interest rates and down payment assumptions.

Full-Service Data Collection

BizWorth handles the entire data collection phase, including the owner’s interview and necessary financial adjustments.

Income Approach

A valuation approach that focuses on the business's future income-generating capabilities.

Multi-stage Growth Method

An Income Approach valuation method that considers different growth rates over distinct periods to estimate the value of an investment or business. It acknowledges that the growth of cash flows may vary across stages, allowing for a more nuanced valuation by incorporating different growth assumptions for each stage of the business's life cycle.

Sales, SDE, & EBITDA Multiples

A Market Approach valuation method known as the comparable transaction method assesses the value of the business by comparing it to the prices paid for similar entities in recent transactions. This method relies on analyzing relevant financial and operational metrics of comparable transactions to determine the value of the business using multiples. Depending on the size of the business and the comparable transactions found, the business will be valued using up to three different multiples: Sales, Seller's Discretionary Earnings (SDE), and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).

List of Comparable Transactions

Identification and analysis of similar transactions in the market to provide context for the business's valuation.

Industry Benchmarking

Comparison of the business's financial performance against similarly sized industry peers to assess relative strengths and weaknesses.

State Tax Verification

Verification of state-specific tax considerations and implications, ensuring accuracy in the valuation process.

Loan Payment Affordability

The loan payment affordability of a business provides another way to look at the estimated selling price. It focuses on whether the company's cash flows can afford the yearly payments for the loan used to buy it.

Part B Certified Business Appraisal

Part B - Certified Business Appraisal

Typical Pricing: $2,500 - $6,500

Part B, the Certified Business Appraisal, seamlessly continues the valuation journey once an offer is accepted by the seller. Building on the foundation laid by Part A, this report is ordered by BizWorth’s participating lender and includes all information required to meet the stringent requirements set by the lender’s underwriting and the Small Business Administration (SBA), if applicable. Its precision and compliance ensure a smooth transition during the financing phase, providing participating lenders with a detailed analysis for informed lending decisions.

Specifically tailored to meet the Small Business Administration's (SBA) loan requirements, ensuring alignment with standard operating procedures.

  • Leverages data previously collected from Part A and provides consistency of certified appraiser conducting both valuations.
  • Incorporates the latest financial statements to reflect the most recent performance and financial health of the business.
  • Offers a detailed analysis that aids lenders in making informed decisions regarding the financing of business acquisitions.
  • Fully complies with the highest industry standards, including the Uniform Standards of Professional Appraisal Practice (USPAP) and National Association of Certified Valuators and Analysts (NACVA) standards.

Report Includes:

Adherence to NACVA Standards

Indicates BizWorth’s valuation process follows the standards set by the National Association of Certified Valuators and Analysts for credibility and reliability.

Prepared by Certified Appraiser

Confirmation that the valuation report is crafted by a certified appraiser, ensuring expertise and credibility.

Economy & Industry Overview

Consideration of economic and industry factors influencing the business's value.

Business Nature & History Summary

A brief overview of the business's nature and history, providing context for the valuation.

Adherence to USPAP Standards

Ensuring compliance with the Uniform Standards of Professional Appraisal Practice for credibility and ethical standards in valuation.

Report Review with Certified Appraiser

An opportunity for a review of the valuation report with the certified appraiser to ensure accuracy and understanding.

Gather Required Information

The process you can expet

Here's an easy-to-understand explanation of the process to get started with BizWorth’s PreQual Process™ and provide the information needed to obtain a business valuation report:

Step 1:  Click the Green "Get Started“ Button

Initiate the process by selecting "Get Started" at, then select the “PreQual” tile. Next, provide any essential details requested about yourself and the company.

Step 2:  Select and Customize Your Report

After entering company details, BizWorth’s system will direct you to the PreQualified Valuation Report for you to add to your cart. Review any additional recommendations, enhance your report options, and proceed to checkout. Pay securely with major credit cards, Affirm, or ACH.

Step 3:  Provide Additional Information

On the "Information We Need from You" page, submit the required details about the company.

Step 4:  Accept Invite to Data Collection Portal

Check your email for an invitation from to the secure Data Collection Portal. Accept the invite to create your account.

Step 5:  Complete Portal Intake Form

Navigate through the portal, filling out required forms and carefully following instructions. Save your progress if needed. Once finished, select "I've finished" to notify BizWorth that your valuation is ready to get started. This initiates the appraisal, starting the countdown for delivery within the specified turnaround time. Check your email for updates.

This process is designed to be simple, efficient, and tailored to your business valuation needs.

Completing Part A of the PreQual Process typically takes between 1 to 5 business days. Once finished, the report is uploaded by BizWorth to the Data Collection Portal, and the primary stakeholder, often the person who ordered the report, receives a notification via email. At this point, participating lenders are also informed of the completed report. They gain access to Part A along with the company's tax documents, financials, and intake forms to conduct their analysis for conditional approval. This lender evaluation process may take up to ten days following the completion of Part A. Lenders will provide an "Approve or Deny" decision of the loan eligibility range located in Part A of the report along with contact information and any additional comments (see Section 6 below for more about Loan Eligibility Range).

As the deal progresses and an offer is accepted by the seller, the broker will request the participating lender to order Part B. Be sure to provide the Part B Reference Code found on the front cover of Part A to the lender.

Part B, the Certified Business Appraisal, is ordered by BizWorth’s participating lender and includes an update of Part A with all necessary information required to meet the stringent requirements set by the lender’s underwriting and the Small Business Administration (SBA), if applicable.

PreQual Process - Upload Information

Data you’ll need to collect

To kick off the business valuation process, you’ll start by gathering the necessary business and financial data needed for BizWorth to prepare a comprehensive and accurate valuation report.

You’ll start with the Intake Form on the BizWorth Data Collection Portal which was designed for a seamless and secure data gathering experience. This platform ensures the confidentiality and integrity of your business information, offering a secure environment to collect essential data.

The valuation process will be initiated only after you have completed and submitted the application through BizWorth's Data Collection Portal. So you can be prepared to complete the Intake Form, below is the information you’ll need to provide.

PreQual Process Reports

Complete Intake Form

In this initial step, we’ll start by collecting information about the company’s owners, business details and attributes about the business.

Primary Contact Information
  • Primary Contact Full Name
  • Primary Contact Title i.e. President, Vice-President, Owner, etc.
  • Primary Contact Email and Postal Address
Business Details
  • Legal Business Name i.e. ABC, LLC
  • DBA, if applicable
  • Company’s NAICS code(s) – you’re NAICS code(s) can be found on your tax return. An accurate NAICS code is critical to the valuation. We use this code to conduct industry benchmarking as well as find comparable transactions. You can confirm the accuracy of your code on the NAICS Association website:
  • Company website, if applicable
  • Entity type i.e. LLC, Partnership, C-Corp, Non-profit, etc.
Company Financials
  • Tax returns for the business for the last three years or since inception if less than 3 years
  • Annual financial statements for the last three years or since inception if less than 3 years (Excel)
  • Interim financial statements for year-to-date (if applicable), provided by month (Excel)
  • If company has subsidiaries, upload financials (Excel)
Transaction History
  • Transaction History: Has the business been previously appraised? If yes, when was the appraisal, what was the purpose and what the valuation amount?
  • Has the business received any written or oral offers in the last five years? If yes, Describe all written or oral offers received for the company in the last five years. Who were shares sold to? What was the price of shares sold? What was the percentage (%) of shares sold? What were the restrictions, if any? What was the reason for the sale? Terms and type.
Company Background
  • Provide a brief history / background of the company and why it was started.
  • List the major historical events of the company.
  • What is the current number of employees and the current number of contractors?
  • What is the principal activity of the company?
  • Date and State of formation
  • Partner / shareholder name, title and % ownership
  • Partner /shareholder compensation
Related Party Transactions
  • List all known related parties (that is, subsidiaries, affiliates, or relatives) that the company does business with. Examples include: The company employing friends or family of the owners. Renting space from an affiliate company or family member.
  • List each location maintained by the company and the primary activity at each, that is, executive office, plant, sales office, etc.
Products & Services
  • Describe your customers.
  • Who are your top 5 customers and the annual revenues from each last year?
  • Do you expect any changes to your top five customers and their associated revenues?
  • Describe your market area or region.
  • Describe your marketing and advertising strategy.
  • Is your business cyclical or seasonal.
Competition and Differentiation
  • List the company's major competitors and provide their websites, if applicable.
  • How does the company compare in size and market share to its competitors?
  • How easy is it to enter the industry? In your opinion, what are the barriers to entry?
  • Describe the company's product/service differentiation from competition.
  • List the company's competitive strengths.
  • List the company's weaknesses.
  • Who are the key management members? Provide name and title.
  • What are their job responsibilities?
  • What is their education and background?
  • What is their compensation?
  • Discuss any turnover in key members of management over the last five years.
  • Describe employee benefits (insurance, stock options, profit sharing, etc.)
  • Describe any employment contracts in place.
Operations and Facilities
  • What is the capacity relative to the current operating levels? Are sales constrained by current capacity?
  • How many shifts and days per week does the company operate?
  • Is there excess capacity or excessive fixed overhead costs?
  • Are buildings and/or machinery owned or leased?
  • Is there any inefficient or obsolete equipment?
  • What is the likelihood of major repairs?
  • Does the company have any foreign operations?
  • Discuss the effects of any existing or potential federal or state regulation or subsidies on the company's operations.
Industry and Financial Information
  • List the company’s NAICS codes. Your NAICS code can be found on your tax return. An accurate NAICS code is critical to the valuation. We uses this code to conduct industry benchmarking as well as find comparable transactions. You can confirm the accuracy of your code on the NAICS Association website:
  • How is the business entity taxed? (Examples: Owner’s tax return, Partnership, S Corporation, Nonprofit, etc.)
  • What is the fiscal year-end of the company?
  • Are ongoing capital expenditure (i.e. major expenses) levels going to remain consistent or will there be a material increase or decrease?
  • How much of the spend represents expansion versus replacement of existing assets?
  • Have there been any short-term and/or long-term sources of credit used in the last five years?
  • Describe the sources of credit and how they were used.
  • Discuss any special stock rights, warrants, options, etc.
  • Discuss the company's dividend history, if applicable:
  • Is there any pending or threatened litigation?
  • Who are your top 5 vendors?
  • Identify primary discretionary expenses (including perks to company owners), total amounts of each and where they can be found on the income statement.
  • Identify non-operating assets & liabilities (examples include cash portion of life insurance, vacant land, etc.).
  • Are current appraisals of tangible assets available?
  • Is the company carrying assets not in use?
  • List and describe any leasing activities.

Read the Report

What you should know before reading your report

Understanding the intricacies of a business valuation report is paramount for a business owner and their advisors. Beyond determining the current market value, this knowledge empowers owners to make well-informed decisions regarding sales, mergers, or strategic moves.

Your report serves as a benchmark for identifying areas of strength and weakness, aiding in strategic planning and continuous improvement. In negotiations, a comprehensive understanding allows owners to justify and support their proposed listing price. Whether for estate planning, tax considerations, or compliance with legal regulations, a clear grasp of the valuation report is indispensable. Additionally, it facilitates effective communication with stakeholders, helps set realistic expectations, and positions the business for financial success and growth.

Here are some key terms you should know to get familiar with reading valuation reports:

1. Valuation Approaches

There are three valuation approaches (market, income, and asset). A valuation approach is a broader framework or methodology used to determine the overall value of a business or asset. It represents the overarching strategy or perspective applied in the valuation process.

  • Market Approach: Compares the subject business to similar businesses in the market that have been sold or valued.
  • Income Approach: Focuses on the present value of the future income and cash flows generated by the business.
  • Asset Approach: Values the assets of the business, often considering the net book value or replacement cost.

2. Valuation Methods

Valuation methods are specific techniques or procedures used within a particular valuation approach (market, income, and asset) to derive a numerical value. These are the detailed steps or calculations employed to assess the value of the business. Depending on the chosen valuation approach, various methods may be used under each approach.

  • Comparable Private Transaction Method: The Comparable Private Transaction Method is a market approach used in business valuation to assess the value of a company by comparing it to similar private transactions in the market. This method relies on data from recent transactions involving the sale of ownership interests in comparable private companies. Analysts identify transactions with characteristics similar to the subject company, considering factors such as industry, size, and financial performance. By analyzing the pricing multiples and terms of these comparable private transactions, an estimate of the subject company's value can be derived. It is common for BizWorth to use the comparable transaction method because of the availability of past private transactions that are the relative size of the subject business.
  • Guideline Public Company Method: The Guideline Public Company Method is another market approach that involves evaluating the subject company's value by comparing it to publicly traded companies. Valuation professionals identify a set of publicly traded companies that closely resemble the subject company in terms of industry, size, and other relevant factors. Key financial metrics, such as price-to-earnings ratios and market multiples, are analyzed to establish a valuation benchmark. The valuation of the subject company is then derived based on the average or median multiples observed in the guideline public companies.
  • Prior Sales of Interest in Subject Company: This method involves examining the historical transactions of ownership interests in the subject company. Valuation professionals review past sales or transfers of shares within the company to understand the pricing and terms of these prior transactions. This information is valuable in assessing the market value of the subject company's ownership interests. By analyzing the prices paid in previous sales of similar ownership stakes, analysts can derive insights into the historical market value and use this data as a reference point for the current valuation.
  • Capitalization of Earnings (Cash Flow) Method: The Capitalization of Earnings (Cash Flow) Method is an income approach used to estimate the value of a business based on its expected rate of return. This method involves capitalizing the business's projected earnings by dividing them by the capitalization rate. The capitalization rate represents the rate of return required by an investor to justify the investment. The result provides an estimate of the business value based on its ability to generate earnings over time. This method is often used for businesses with consistent and stable earnings.
  • Multi-Stage Growth Method: The Multi-Stage Growth Method is an income approach that recognizes a business's potential for growth over multiple stages. Unlike traditional methods that assume a constant growth rate, the multi-stage growth method considers different growth rates for distinct periods. Valuation professionals project the cash flows for each growth stage, applying appropriate discount rates. This method is suitable for businesses with expected variations in growth rates over time. It provides a more nuanced valuation, accounting for the dynamic nature of a company's growth potential.
  • Discounted Cash Flow (DCF) Method: The Discounted Cash Flow (DCF) Method is another fundamental approach within the income approach to business valuation. It involves estimating the present value of a company's future cash flows. Valuation professionals project the expected cash flows the business will generate over a specified period, usually five to ten years. These projected cash flows are then discounted back to their present value using a discount rate that reflects the time value of money and the risk associated with the business. The DCF method provides a detailed and comprehensive valuation by considering the entire cash flow timeline and is particularly suitable for businesses with predictable and stable cash flow patterns. This method may be used when a company expects a change in future capital expenditures (or revenue and expenses), anticipates high near-term growth rates to normalize at lower levels in the long term and/or has a reliable income projection.
  • Book Value Method: The Book Value Method is an accounting-based approach used in business valuation. It calculates the value of a business by subtracting its total liabilities from its total assets, resulting in the net book value. This method relies on the company's balance sheet figures, considering the historical costs of assets and liabilities rather than their current market values. While the Book Value Method provides a straightforward assessment of a company's net worth based on its recorded financial data, it may not reflect the economic reality of the business, especially for companies with significant intangible assets or those in rapidly changing markets.
  • Adjusted Net Assets Method: The Adjusted Net Assets Method is an enhancement of the Book Value Method that considers adjustments to the net book value of a business. Analysts make adjustments to the recorded assets and liabilities, accounting for factors such as market value fluctuations, the revaluation of assets, or the inclusion of intangible assets not reflected in the book value. This method aims to provide a more accurate representation of the business's economic value by considering adjustments that align with its current market conditions. The Adjusted Net Assets Method is particularly useful when the book value alone does not adequately capture the business's true value.

3. Financial Statements

  • Profit and Loss (P&L) Statement: Also known as the Income Statement, this document summarizes the revenue, costs, and expenses over a specific period. It provides insights into the business's profitability and operational efficiency.
  • Balance Sheet: The Balance Sheet offers a snapshot of a company's financial position at a specific point in time. It details its assets, liabilities, and equity, showcasing the overall health and financial structure of the business.

4. Adjustments

  • Addbacks: Addbacks are adjustments made to financials to account for non-recurring, or discretionary expenses. Examples include one-time legal fees or owner perks that may not reflect the ongoing operational costs of the business.
  • Deductions: Deductions involve reducing reported figures to eliminate non-essential or extraordinary items. These adjustments aim to provide a more accurate representation of the business's financial performance by excluding non-operational or non-recurring items.

5. Comparable Companies

  • Peer Comparable Analysis: This analysis involves comparing the subject company to similar firms based on characteristics such as company size, industry, region, and/or financial performance. Analysts assess various financial metrics, market multiples, and operational characteristics to gauge the business's relative position in the market.

6. Valuation Summary

  • Valuation Summary and/or Executive Overview Section: Found within the business valuation report, the Valuation Summary Section offers a concise overview of the key findings derived from the valuation process. It includes the value of the business and highlights critical factors influencing the valuation, such as key assumptions, risks, and considerations.

7. Benchmarking Ratios

Benchmarking ratios are financial metrics used to compare a company's performance against industry averages, competitors, or predefined benchmarks. These ratios provide insights into how well a company is performing relative to its peers or industry standards. Benchmarking ratios help businesses identify strengths, weaknesses, and areas for improvement. Common benchmarking ratios include:

Liquidity Ratios:
  • Current Ratio: The Current Ratio is a measure of a company's short-term liquidity, assessing its ability to cover immediate obligations. It is calculated by dividing current assets by current liabilities. A ratio above 1 indicates the company has more assets than liabilities due in the short term.
  • Inventory Turnover Ratio: The Inventory Turnover Ratio evaluates how efficiently a company manages its inventory by dividing the cost of goods sold by the average inventory. A higher ratio suggests effective inventory management, while a lower ratio may indicate overstocking.
  • Days' Inventory Ratio: The Days' Inventory Ratio measures the average number of days it takes for a company to sell its entire inventory. It is calculated by dividing the number of days in a period by the inventory turnover ratio. A lower days' inventory ratio implies faster inventory turnover.
Asset Management Ratios:
  • Net Fixed Asset Turnover Ratio: The Net Fixed Asset Turnover Ratio gauges how efficiently a company utilizes its net fixed assets to generate sales. It is calculated by dividing sales by the average net fixed assets. A higher ratio indicates efficient asset utilization.
  • Asset Turnover Ratio: The Asset Turnover Ratio measures how effectively a company employs its total assets to generate revenue. It is calculated by dividing sales by average total assets. A higher asset turnover ratio indicates efficient asset utilization.
Debt Management Ratios:
  • Times Interest Earned Ratio: The Times Interest Earned Ratio assesses a company's ability to meet its interest obligations. It is calculated by dividing earnings before interest and taxes (EBIT) by interest expenses. A higher ratio indicates better interest coverage.
  • Debt-to-Equity Ratio: The Debt-to-Equity Ratio evaluates a company's financial leverage by comparing its debt to shareholders' equity. It is calculated by dividing total debt by shareholders' equity. A lower ratio suggests lower financial risk.
Profitability Ratios:
  • Gross Profit Margin Ratio: The Gross Profit Margin Ratio indicates the percentage of revenue retained as gross profit after deducting the cost of goods sold. It is calculated by dividing gross profit by revenue. A higher ratio suggests better profitability.
  • Operating Profit Margin Ratio: The Operating Profit Margin Ratio assesses a company's operating efficiency by measuring the percentage of revenue retained as operating profit. It is calculated by dividing operating profit by revenue. A higher ratio indicates efficient operations.

8. Loan Eligibility

What does "prequalified loan eligibility range" mean?

The prequalified loan eligibility range signifies the potential amount a creditworthy buyer could secure from a participating lender to acquire a company. This range indicates the spectrum within which the lender may conditionally approve the loan, but it does not imply that the conditionally approved amount will necessarily be at the high or low end—it could fall anywhere within the specified range. The actual approved amount is contingent on the buyer's creditworthiness, the lender’s underwriting approval and other relevant factors.

 Why does the "prequalified loan eligibility range" matter for participating lenders?

For lenders, the loan eligibility analysis and valuation of the company, along with the company’s tax returns and financial statements, helps determine how much loan the business's cash flows can support, assuming the buyer is creditworthy. The detailed breakdown assists lenders in confirming that their proposed loan amount falls appropriately within the calculated eligibility range and does not exceed the value of the business.

 While lenders are not obligated to conditionally approve a specific loan amount, recognizing the unique and diverse criteria set by each bank, confirmation serves to: (1) conditionally approve a sum within the specified loan eligibility range, (2) affirm that the business has sufficient cash flows to support a loan amount within the eligibility range, and (3) demonstrate their financial institution's interest in providing a loan. Upon confirming a conditional approval, participating lenders convey their decision through BizWorth’s secure portal, initiating an automated email notification to the business owner and/or advisor.

 Why does the "prequalified loan eligibility range" matter for business owners and their advisors?

The significance of the"prequalified loan eligibility range" for business owners and their advisors lies in three key aspects.

 First, it serves as a critical tool to pinpoint any disparities between the assessed value of the business and its loan potential, emphasizing that these are distinct considerations. This identification of a gap prompts astute advisors to recognize the need for strategic planning to bridge the divide, involving alternative financing options beyond traditional bank loans. Such strategies may include exploring seller financing, considering additional cash down, contingency payments, and other creative financial solutions.

 Second, this understanding of a potential gap enables proactive business advisors to develop effective strategies aimed at aligning the business's value and its loan potential. By recognizing the divergence, they can tailor alternative financing approaches to ensure a more seamless and successful transaction.

 Third, the act of securing a"conditional approval" from a lender holds significant weight. Beyond the financial aspect, it elevates the business's credibility and enhances its overall appeal to potential buyers. This not only instills confidence in the business's financial standing but also signals to prospective buyers that the business is a secure and viable investment.

 In essence, the "prequalified loan eligibility range" becomes a strategic compass for business owners and advisors, guiding them through the intricate terrain of valuation,financing, and market appeal.

 Is "conditional approval" a guarantee that a buyer will secure a loan to purchase the Company?

Receiving a conditional approval does not guarantee that the buyer will ultimately secure a loan to purchase the company. Several factors may influence the final approval decision, such as the buyer's creditworthiness, the bank's underwriting process, changes in the business's cash flows, shifts in the industry outlook, alterations in economic conditions, and various other considerations. Nevertheless, obtaining a conditional approval from a participating lender is a significant step toward the buyer securing a bank loan for the purchase of the company.