Business Valuations Income Approach

Business Valuations Income Approach

Hey everybody Dan Branch here for another episode of behind the numbers with IAG Forensics & Valuation.

Today I wanted to talk a little more detail about the income approach and what that approach is in terms of business valuations. With a Business Valuation you’re trying to determine the value of a company at a point in time whether it’s today maybe it’s 10 15 years ago. One way to do that is what we call the Income Approach and under that approach you’re looking at essentially what the cash flows are that the business is making, what kind of cash is it generating, what kind of cash do you expect to generate in the future.

Then what are also the risks related to those cash flows so some of the things you need to think about are well are there any adjustments you need to make to the cash flows.

Maybe the business owner was paying higher or lower rent than they really should have.

Another way is also the compensation for the owners were they paying themselves above or below market there could be other adjustments other personal expenses things of that nature that could be paid through the business that would need to be adjusted to get the true and accurate cash flows for the business so when you’re looking at the cash flows and the income approach it’s really helpful to have all the information the historical information so you can go in depth to the numbers and really get behind the numbers to figure out what the cash flows should be again this is just a little more detail about the income approach.

On future episodes I’ll be talking more about the details about the asset approach look forward to it.