I decided to try my hand at being a "blogger". I wanted to have a place to offer business advice, as well as to post information regarding spiritual and other matters.
One of the most difficult things about accounting is getting one's hands around the various accounting rules. There has never been a good "one stop" place to get all of the answers about generally accepted accounting principles ("GAAP"). The Financial Accounting Standards Board ("FASB", pronounced "fas-bee") is trying to rectify this by creating the Accounting Standards Codification. The first draft of the Codification has been completed and is available free here. Just click on "Registration".
This was a fascinating article about the upcoming changes to purchase accounting. Click here. The changes will be effective for calendar 2009 and after. One interesting change is that acquisition costs will be written off. Also, acquirers may be able to recognize a gain from a "bargain" purchase of another company.
In my last post, I said we stayed at The Wynn Hotel in Las Vegas, So, how was it? For a hotel with over 2,700 rooms, they did a pretty good job. The decor and standards of the place are pretty comparable with the Bellagio. We had a room on the 39th floor overlooking the Strip. I would definitely ask for this view if you stay there. The service was a tad inconsistent, but nothing more than I would expect with such a large hotel. We went to see the show, Le Reve, which was fantastic. We got our tickets at the Half Price Ticket place in the Fashion Show Mall across the street (up next to the food court). We paid about $75 each for third row tickets that retail for $140 each. We had dinner one night at the Daniel Boulud Restaurant. Get the Caesar Salad and the Short Ribs. It's expensive, but I promise you won't be sorry.
This June, I attended the annual conference of the National Association of Certified Valuation Analysts at The Wynn in Las Vegas. See www.nacva.com for their web site. I attended a variety of classes on various business valuation subjects. One of the most interesting was a presentation by an investment banker. While many of the classes at the conference were theoretical, the investment banker talked about the subject from a practical standpoint.
He basically said he would almost always buy solid businesses at five times earnings (which equates to a discount rate and a capitalization rate of 20%). However, if he were to go beyond five times earnings, the seller would have to prove to him that the business had an opportunity to grow. If the business had growth potential, the multiple paid could be increased. The chart below illustrates this. For example, an expected long-term sustainable growth rate of 5.7% means that a cap rate of 14.3% results when using a discount rate of 20%. The 14.3% cap rate equates to a multiple of 7.
I hope I've explained this in a way that makes sense. If not, please e-mail me. The bottom line is this. If you are looking to sell your business, and you want a value more than a multiple of five, you better be able to demonstrate to a buyer that the business has long-term, sustainable growth potential.
The tax returns for partnerships (including limited liability companies) and trusts are due on April 15th. Right now, they may be extended six months until October 15th. That's going to change in 2009 and beyond. The new extended due date is September 15th.
