A Business FAQ with Ronald K. Parsonage.
Usually business valuation is a 2-stage proposition. In the first stage is to develop a general value for the business based upon formulas that are readily accepted. If the formula amount that you think you are willing to offer exists, you enter into a standstill agreement. At this time the real due diligence starts where you ask for copies of all material contracts and that you are involved in receiving at least 5 years of financial statements and tax returns, and following that either with an accountant or a business appraiser, you establish what you think the true value of the business is. It usually entails using formulas such as Rev. Rul. 59-60, which deals with the issues of the book value adjusted plus a return on earnings or goodwill.
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