Business Valuation

[Mike Rohm]

I want to take business valuation courses to increase my competency in assignments asking for going concern value - specifically c-stores and hotels. I’ve heard good things about the courses offered by the American Society of Appraisers (ASA) and I only see one course offered by the Appraisal institute on the matter. ASA appears quite expensive so I wanted to hear testimonies from people who have taken business value courses to gauge what direction is best. Thanks in advance.

 

[PL1957]

Historically, the BV classes offered by the ASA have been targeted toward accountants. When I took the intro classes (a long time ago), there were 4 real estate appraisers out of around 50 students. The classes were very good, but did assume a high comfort level with financial statements and concepts.

I believe ASA is in the process of merging with NAIFA. I don't know if that will change the structure or emphasis of their classes.

 

[Mike Rohm]

Historically, the BV classes offered by the ASA have been targeted toward accountants. When I took the intro classes (a long time ago), there were 4 real estate appraisers out of around 50 students. The classes were very good, but did assume a high comfort level with financial statements and concepts.

I believe ASA is in the process of merging with NAIFA. I don't know if that will change the structure or emphasis of their classes.

I’m more concerned with how the classes actually benefit our work. For instance, can the quality of the work product significantly increase from taking the courses? And is it likely to expect more going concern assignments? In other words, will banks recognize/appreciate appraisers that take these classes as significantly more competent than their peers in business value. And just generally can I expect to get new assignments with these courses under my belt?

 

[PL1957]

I’m more concerned with how the classes actually benefit our work. For instance, can the quality of the work product significantly increase from taking the courses? And is it likely to expect more going concern assignments? In other words, will banks recognize/appreciate appraisers that take these classes as significantly more competent than their peers in business value. And just generally can I expect to get new assignments with these courses under my belt?

That's easy to answer - no, the classes won't make a difference as far as clients are concerned. The classes will clearly improve your personal body of knowledge - how that is reflected in your reports is up to you. The amount of true BV contained in an appraisal of a c-store or hotel is nominal.

 

[Gobears81]

I took the fundamentals of allocating business assets/personal property class through AI. I'm glad that I took it and at one point, I was told that class was expected for SBA appraisals involving going concerns, but that may or may not be completely accurate. In terms of that class increasing my body of knowledge so much, probably not. But BV/ personal property allocation is somewhat of a weak spot in our profession right now IMHO.
A colleague took the c-store class offered by AI and was pretty positive about it. Haven't taken AI's hospitality class, but might this CE cycle, depending on how things fall into place.

The amount of true BV contained in an appraisal of a c-store or hotel is nominal.

What do you mean by that?

 

[Mike Rohm]

I took the fundamentals of allocating business assets/personal property class through AI. I'm glad that I took it and at one point, I was told that class was expected for SBA appraisals involving going concerns, but that may or may not be completely accurate. In terms of that class increasing my body of knowledge so much, probably not. But BV/ personal property allocation is somewhat of a weak spot in our profession right now IMHO.
A colleague took the c-store class offered by AI and was pretty positive about it. Haven't taken AI's hospitality class, but might this CE cycle, depending on how things fall into place.

What do you mean by that?

I’m planning on taking both of those classes and didn’t know if the ASA classes added additional benefits. I appreciate the input because those courses are incredibly inexpensive compared to the ASA courses which I’m gathering don’t add much value to what we do. Any other input is appreciated but this has been helpful.

 

[Terrel L. Shields]

can the quality of the work product significantly increase from taking the courses?

I took the AI course, it's worth taking. BEV can be substantial in hotels & C-stores. SBA used to require a BEV course.

 

[PL1957]

What do you mean by that?

Appraisers will typically value a single asset, not taking into consideration any existing debt. A true BV would take into account such factors as assets/liabilities as well as the capital/ownership structure of the enterprise. The next time I see that in a c-store or hotel appraisal will be the first time ...

 

[Gobears81]

Appraisers will typically value a single asset, not taking into consideration any existing debt. A true BV would take into account such factors as assets/liabilities as well as the capital/ownership structure of the enterprise. The next time I see that in a c-store or hotel appraisal will be the first time ...

This is an interesting take. I'll have to think about it.
My initial take is to disagree in that 99% of assignments do not involve valuation of the existing mortgage, which frequently do not transfer with a prospective sale anyways. Don't want to put words in your mouth, but I'm guessing that you are thinking more on the accounts receivable/ accounts payable standpoint? If so, that is certainly an issue that could effect the sale, as is inventory that is typically valued separately in the sales contract. But as an example, I just completed an assignment of a +/- 50-year-old c-store in the past month or so in a town of 2,000. Didn't have indoor restrooms and functional obsolescence was certainly identified, but the actual performance was quite strong and I identified a high percentage of intangible assets. Would A/R and/ or A/P plus perhaps all other long and short-term debt payments really diminish BV to a nominal number? I remember the financial statements pretty clearly, and this specific case, there would not be. But from a positive leveraging standpoint, average long-term debt rates and average EBITDA cap rates support taking out pretty substantial debt, which would not negate BV IMO.

 

[PL1957]

This is an interesting take. I'll have to think about it.
My initial take is to disagree in that 99% of assignments do not involve valuation of the existing mortgage, which frequently do not transfer with a prospective sale anyways. Don't want to put words in your mouth, but I'm guessing that you are thinking more on the accounts receivable/ accounts payable standpoint? If so, that is certainly an issue that could effect the sale, as is inventory that is typically valued separately in the sales contract. But as an example, I just completed an assignment of a +/- 50-year-old c-store in the past month or so in a town of 2,000. Didn't have indoor restrooms and functional obsolescence was certainly identified, but the actual performance was quite strong and I identified a high percentage of intangible assets. Would A/R and/ or A/P plus perhaps all other long and short-term debt payments really diminish BV to a nominal number? I remember the financial statements pretty clearly, and this specific case, there would not be. But from a positive leveraging standpoint, average long-term debt rates and average EBITDA cap rates support taking out pretty substantial debt, which would not negate BV IMO.

You're missing my point - if you are truly doing a BV, you will value all components of the enterprise, including marking any debt or leases to market. Things like AP/AR, equipment leases, supply contracts, etc. can have a significant impact on the value of the enterprise, as can the structure of the ownership. Those would need to be addressed in a BV, but they're overkill in a "typical" appraisal.