Author: Lou Pereira

Attention SBA Lenders: Choosing the Right Type of Business Valuation Helps Manage Portfolio Risk and Credit Risk

Posted on by Lou Pereira

Effective October 1, 2026, SBA lenders will require both a business valuation and quality of earnings report (QoE) for initial business investments and for businesses valued at $3 million or more.

When it comes to valuations, the least expensive valuation option may satisfy a basic requirement, but a detailed, objective valuation can give an SBA lender stronger support for assessing and managing risk.

Lenders are going to request an objective business valuation to assess risk as part of the financing decision for:

  • Business acquisitions
  • Management buyouts
  • Partner buyouts
  • Succession planning loans

Two Primary Choices for SBA Lenders:

While the SBA requires a business valuation to be prepared by a qualified business appraisal professional, the reality is there are varying degrees of valuation work completed.

1. The check-the-box option

This is typically a limited-scope estimate designed to satisfy a lender’s basic valuation requirement at the lowest practical cost. An SBA lender may opt for this valuation as they have already decided to underwrite the loan.

  • Pros: Lower cost.
  • Cons: Unlikely to withstand the same level of lender, investor, or legal scrutiny as a more comprehensive business valuation.

2. A detailed, objective business valuation

A comprehensive business valuation provides a well-supported assessment of a company’s fair market value and clearly explains how and why the conclusion was reached. Merrimack Business Appraisers evaluates normalized financial performance, cash flow, assets, liabilities, market conditions, industry trends, company-specific risks, and comparable transactions using our long-adopted and proven discounted cash flow method. The resulting report documents key assumptions and calculations, giving lenders, buyers, sellers, investors, and advisers a credible analysis designed to withstand rigorous financial, legal, and regulatory scrutiny.

  • Pros: Detailed report presenting how and why the valuation was determined. Beneficial to the SBA lender as input for deciding whether to finance the deal or not and if yes, whether SBA Guarantor is part of terms.
  • Cons: More expensive

Many lenders rely on detailed business valuations to support financing decisions. A thorough, objective valuation gives the lender more information for evaluating risk and determining whether the loan can proceed without an SBA guarantee. Because an SBA guarantee may add constraints and costs to the loan, the quality of the valuation can affect the borrower’s financing terms.

Investing in a detailed business valuation rather than a check-the-box valuation may result in more favorable financing terms. If a check-the-box valuation does not adequately address risks such as insufficient collateral, excessive goodwill, or a purchase price above market value, the lender may seek an SBA guarantee to offset the perceived risk. That guarantee may increase financing costs and the total cost of the transaction.

Conclusion

A low-cost, check-the-box valuation may be sufficient for an SBA lender who has already decided to underwrite the transaction.

A detailed business valuation can provide important support for the lender’s final financing decision and help them determine if they want to use the SBA Guarantor to reduce their risk. SBA lenders that engage the business appraisers who apply the highest standards for determining value offer a thorough valuation including presenting what the value is and why.

When Values Matter.

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National Estate Planning Month: Why a Business Valuation May Be Essential

Posted on by Lou Pereira

With summer behind us and October underway, National Estate Planning Month offers individuals and business owners a useful prompt to organize their financial affairs.

Taxpayers who requested extensions are finalizing their 2025 returns with their CPA, including year-end tax planning strategies.

During conversations with trusted advisors, such as your estate planning attorney and CPA, consider whether a business valuation is needed. Common reasons include:

  • Settling an estate after a shareholder’s death
  • Preparing to gift shares of the business

Whether a recent event requires a business valuation or your estate plan includes transferring business shares, we’re here to help.

Fall naturally encourages planning and organization. As you clean out closets, straighten the garage, and trade the lawnmower for the snow blower, make time to revisit your estate plan as well.

While finalizing tax filings and consulting with your advisors, reach out to Merrimack Business Appraisers if your plans call for a business valuation.

Whatever the season or the event that triggers a need for a business valuation, we are here to help.

When Values Matter.

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You own a business; how a business valuation fits into exit planning.

Posted on by Lou Pereira

You’ve built a business. As you think about how long you want to work, most business owners want to know: what do I have here? How much is this business worth?

This situation is honestly one of my favorite ‘triggers’ for preparing a business valuation.

We have all seen the statistics of the massive numbers of baby boomers nearing retirement and whether they sell, gift, or shut down and the repercussions to our economy. 

If you are wondering what your business is worth, a business broker may be able to provide a high-level, summary valuation based on demand for businesses like yours in today’s market.

However, you may want or need a more in-depth, objective business valuation such as those I prepare that include a detailed financial analysis of the past five years of income statements and balance sheets, and common-size and industry peer group analysis to identify trends and anomalies. The financial analysis includes development of a forecast of potential future income statements and balance sheets that is helpful for buyers and potential lenders to understand why the acquisition is affordable. The analysis also highlights areas that contribute to value and where improvements can increase value.

Should I gift ownership in my business?

Today’s tax incentives are favorable to gifting shares of one’s business to the next generation as the federal estate and gift tax lifetime exemption for individuals is $15 million ($30 million for couples) as of January 1 of this year with an annual gift tax exemption of $19,000. This presents a significant opportunity for gift and estate tax planning. Many estate and tax advisors remind their clients that the next administration may change the gift and estate tax exemptions which could significantly alter the tax benefits of gifting shares of your business.

If gifting fractional shares or entire ownership of your business, you will want to have a business valuation prepared to serve as the cost basis for the new shareholders. The same applies if you are considering moving ownership of fractional shares into a trust for trust and estate planning strategies.

What is my business worth?

If, as a business owner, this question is top of mind, we welcome the opportunity to prepare a business valuation that would support choosing to gift shares of your business and would provide the peace of mind of a thorough valuation that would serve as the basis for evaluating a sale.

I regularly work as part of a team of professional advisors to provide key inputs into your exit planning process. Team members typically include your accountant, financial advisor or wealth manager, corporate attorney, business broker, and trust and estate attorney. I have prepared thousands of business valuations for many underlying needs including tax planning, selling, 409A valuations, and shareholder disputes. The situation I find most satisfying is helping a business owner make an informed decision regarding what is next as they seek to maximize the value of all their years of hard work while evaluating gifting to the next generation or selling.

You deserve to know the value of what you have built.

When Values Matter.

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Going through a divorce? Some advice.

Posted on by Lou Pereira

I am not a therapist or a divorce attorney, but I do offer advice for people separating and planning to divorce when privately-held business are involved in the allocation of assets.

Get one business valuation.

Business valuations prepared due to divorce are difficult at best. Both parties are usually unhappy and both divorce attorneys are often seeking angles and areas to negotiate for their client.

When it comes to needing a business valuation of one or more businesses as part of a divorce settlement, there is no reason to have each party pay for their own business valuation. It is a waste of time and money.  

Why?

A business valuation is a thorough analysis prepared by an objective party. As a business appraisal professional having the highest certifications available, I am committed to developing an objective analysis. The valuation is supported in detail by how I completed the evaluation and why I came to the valuation. The process is consistent for every business valuation developed with no effect of the involved parties.

Agreeing to hire a proven business valuation professional will provide the information needed as an input in the divorce settlement. It is both an efficient and objective approach to complete the divorce proceedings and move on with your lives.

When Values Matter.

Learn more about us.

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Have You Prepared A Business Valuation for A Business Like Mine?

Posted on by Lou Pereira

This is one of the most common questions asked during an initial conversation with a prospective client. Naturally, they want to make a wise decision in selecting a qualified business appraisal professional for preparing their business valuation.

For most people, assessing a business appraiser is not a common occurrence; you may need a business valuation once or twice in a lifetime. My clients are typically savvy business people; having built a business that represents a lot of hard work and sacrifice. It is understandable to assume that having developed a business appraisal for a business exactly like yours would be beneficial.

Recent Example:

Over the past year or so, a brew pub owner called me to assess if I was a good fit to develop a business valuation for his business. When he asked me ‘the question’ about my experience in having prepared a valuation for a brew pub, I explained that I had not, but highlighted the more important criterion to help him make his decision including my proven process, experience, and industry certifications. I had developed business valuations for hundreds of businesses and no two were exactly alike. He politely thanked me and did not hire me. Months later, owners of another brew pub restaurant contacted me and asked ‘the question’. I answered honestly and explained why that was not the best criteria to focus on when selecting a business appraiser. They hired me and you can read more about the results here.

Over my decades of experience, I have prepared business valuations for minerals in the ground, a scuba rental shop in Hawaii, and college courses. The diversity and uniqueness across industries and within industries is remarkable.

If you need a business valuation, for whatever reason (e.g., settlement of a divorce, shareholder dispute, tax reasons including 409A valuations and settlement of an estate), evaluate the prospective business valuation professional based on how they present their process: is it clear? logical? And ask them about their track record and ask about their professional certifications. Specifically, are they a certified business appraiser? Do they do this work full time or are they doing this on the side while their professional focus is elsewhere? Note, some accounting firms offer business valuations for a revenue stream outside of busy season.

I suggest you do not focus on industry and geography (location of the appraiser); these do not matter.

Review a summarized list of criterion to evaluate an appraiser.

Read another article on why industry does not matter, using franchises as an example.

When Values Matters.

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A Common Need for an Objective & Independent Business Valuation: 409A Valuations for Tax Compliance

Posted on by Lou Pereira

Early-stage companies and high-growth businesses commonly backed by venture capitalists often attract and reward employees by issuing restricted stock or stock options to offer an appealing and competitive compensation package.

Compensation in restricted stock or via stock options enables early-stage companies to manage cash flow, attract and incentivize C-level executives and other key employees. The compensation strategy provides a reward for leaders, employees, and independent contractors to offset the inherent risks of working for a start-up. Individuals are incentivized to take a risk with potential sizeable payouts as the company grows and the value of the business increases.

Section 409A of the United State tax code affects companies who offer non-qualified deferred compensation plans including issuing stock options and compensating employees in stock. Compliance with Section 409A requires an objective party to prepare a 409A valuation to determine the value of the stock or exercised stock options to be reported as part of the recipient’s taxable income.

Background on Section 409A

Section 409A was added to the Internal Revenue Code effective January 1, 2005, under The American Jobs Creation Act of 2004. It was enacted partly in response to practices like those of Enron executives, who accelerated payments under their deferred compensation plans to access money before the company went bankrupt. The aim of 409A is to prevent improper deferrals of income for tax benefits.

409A Valuations – Process Matters; Industry Does Not.

Preparing a 409A valuation follows the same process and includes the same components of any detailed and objective business valuation that we develop. The commonly used term ‘409A valuation’ specifically refers to the reason for the business valuation: compliance with Section 409A of the tax code.

We have prepared 409A valuations for a wide variety of industries, and companies, including early stages to high growth; all privately held companies who continue to offer team members, often executive team and management levels, incentives to drive company growth and value.

As we often emphasize in our articles and messaging, industry has no effect on how a business valuation is prepared. We have developed 409A valuations for product and service companies, for companies paying executives in restricted stock, or companies issuing stock options to a broad level of employees multiple times within a year.

Many business valuation firms treat 409A valuations as being unique from business valuations prepared to allocate assets as part of a divorce settlement or for settling an estate or shareholder dispute. We do not. We readily prepare 409A valuations and honestly, enjoy the challenges inherent in developing comprehensive 409A valuations for venture capital-funded companies having complex capital structures including loans, warrants, and convertible loans.

We have a proven track record in developing valuations including 409A valuations that stand up to the highest scrutiny and present the supporting detail as to how and why the business valuation was determined.

Explanation of Timing – Multiple 409A Valuations in a Year

A comprehensive 409A valuation is required for each non-qualified, deferred compensation ‘event’. Events may be a hiring date, a quarterly grant commitment, or company milestone related. Merrimack Business Appraisers is often retained by the company to prepare the 409A valuation per event which can result in multiple valuations being prepared within a year, especially for companies who are on rapid growth trajectory and the number of shareholders and capital structure of the company if often changing.

Read this case study of issuing stock options multiple times in a year.

Conclusion

When you need a 409A valuation, it is important to hire an independent, objective business appraiser with proper appraisal certifications. Given the goal of a 409A valuation prepared is compliance with Section 409A of the tax code, it is important to make an informed business decision to avoid penalties and issues with the tax authorities. Retain a proven business valuation professional whose business is solely focused on business valuation preparation and has a proven track record.

Merrimack Business Appraisers has prepared many 409A valuations for our clients over the years. Our proven processes and track record offer our clients peace of mind that the 409A valuation is objective, defensible, and will stand up to scrutiny.

For leaders in startups and high-growth companies, peace of mind and confidence that they are compliant with tax authorities are highly valued.

When Values Matters.

Contact us.

Playing to One’s Strengths

Posted on by Lou Pereira

Knowing your strengths and playing to your strengths. This adage stands the test of time. While some may first think of an athlete and playing to their natural strengths, this adage rings true to honing our skills, expertise, and talents in any profession.

Successful People Surround Themselves with Talent

Going alone is a lonely journey and an undertaking where one will certainly come across challenges where one’s experience, knowledge, and capabilities will be lacking. Successful people tend to surround themselves with talented people, people who have other areas of expertise, backgrounds, perspectives, experiences, and specialties. I see this regularly with my clients, owners of privately held businesses.

My Clients’ Strengths

I have had the honor of preparing business valuations for thousands of businesses throughout my career. The variety by business model, organizational structure, revenue, and number of employees have varied tremendously. Some clients are faced with a shareholder dispute, need a business valuation as part of a divorce or estate settlement, or are selling all or part of the business. For many of my clients, their need for a business valuation is entering unfamiliar territory. It is completely understandable that they don’t know what to expect, how it works, and what it entails. For anyone, this is not a comfortable situation as most of us do not like being in a situation where we don’t know what we don’t know.

As part of our initial conversation, my prospective client may have a lot of questions or very few as they don’t know what to ask.

From appliance distributors to trade contractors to farmers to fisherman, manufacturers and professional services firms, my clients easily and readily highlight their strengths during our initial conversation. They can readily share with me the essence of their business, key drivers, market positioning, challenges, summarize their customer or client base and highlight top level opportunities. They don’t need a playbook or reference manual to speak with confidence and clarity about their business.

That is not surprising, right? They are, in most cases, doing what they have trained or were educated to do, having honed their skills and expertise to play to their strengths and be their own boss.

As business owners, they have leaned on their own strengths and in most cases surrounded themselves with other talented professionals to survive tough times, hold their own or grow, meet payroll, support the local economy, serve their customer base, and support their families.

Their strengths are naturally conveyed as they talk about their business with ease.

Evaluating Me as a Business Appraiser – Why Pick Me?

In most cases, a prospective client has been referred to me by someone they trust. I have worked with clients who found my website in an online search and do not know me from Adam.

So how does that play out when they evaluate me as the potential business valuation professional to help them in whatever situation they need the valuation for?

Simply, I play to my strengths in our conversation. I don’t have a script or a spiel. I answer their questions and explain how I work, how I charge, and what my proven process is. We have a casual, friendly conversation. I could have this conversation in my sleep as I am speaking about what I do every day and share what I have been doing for many years. I don’t veer off into other lanes. I am a certified business appraiser with the highest certifications available to best serve my clients. I am not a part-time accountant or CPA. This is what I do and all I do. I am a specialist and these are my strengths.

During this conversation, I am often asked, have you prepared a valuation for fill in the blank industry. I explain that my objective, detailed process is applied the same for valuing a farm as it is for valuing land full of minerals in North Dakota or for a rental shop in Hawaii. How I do what I do matters. But, neither the industry nor the trigger for needing the valuation (e.g., sale, shareholder dispute, divorce settlement) matters.

I am not selling during these initial conversations. I am explaining what I do and how I do it and confidently sharing my experience, the expertise I have and am offering that to privately held business owners to help them.

Conclusion

Playing to one’s strengths feels good. When we are in this mode, it feels like beast mode, we are confident, focused, and highly competent. We are not over our skis or outside our lane of expertise. We not only know what our strengths are, we are putting them to good use. We feel centered and confident, and intentions are on sharing our strengths for the benefit of others.

As a business owner, when you need a service such as a business appraisal, a service that may be new to you or unsure how to evaluate your options, it may feel like you don’t have the skills to effectively evaluate your options. I would propose that you have precisely the skills to evaluate a potential professional: Do you feel a sense of rapport? Do you trust the professional? Do they present their services clearly and logically? Do they answer your questions? Are they proven in their profession?

Owners of privately held businesses have many strengths to build on and that will serve them well in surrounding them with the right expertise to help them achieve their goals whether it is for marketing, sales, running operations, hiring an attorney, or securing a business appraisal professional. We are all best served playing to our strengths and when in doubt, rely on others you trust to bring their strong suits to the table.

For decades, I have honed my specialization in preparing detailed, thorough and objective business valuations. Over the years, I have appeared in court to explain the process, the rationale, and the logic to how I answer how the business valuation was determined and why the valuation is substantiated. I have been deposed, cross-examined, and questioned in detail about specific charts and tables in detailed valuation reports that are often over 100 pages in length.

Playing to our individual strengths feels good. Plus, at the end of the day, it is what helps others.

Contact us.

Do You Prepare Business Valuations that Include Real Estate?

Posted on by Lou Pereira

I am regularly asked this question.

The short answer is yes, but it is a bit nuanced. I am a Certified Business Appraiser (CBA) which is different from a real estate appraiser. However, I regularly develop business valuations that include ownership of real estate.

So, how does that work?

As I develop a thorough valuation of a business, if there is associated real estate, the value of the real estate is included in preparing the business appraisal. A real estate appraisal of a property or many properties is an input into the detailed valuation process.

Like many other inputs I gather, the appraisal of the real estate is incorporated into the overall business valuation to then determine fractional ownership value as needed. That applies to all ways a business entity may have real estate interests as part of its business.

There are many examples of how an entity, or a separate entity has real estate interest that are factored into my work for tax-related needs including gifting and estate settlement and for other valuation needs such as settlement of a divorce or selling shares in a business:

  1. The same business entity owns the real estate.
  2. Real estate is owned by a different entity than the business.
  3. Vacation home organized as a business entity where ownership has been gifted over many generations, multiple owners of the property with various degrees of ownership.
  4. A VRBO-like situation: the residential property is organized as a business entity and is earning revenue; single owner or multiple owners with fractional ownership.

In all these cases, development of the business valuation is prepared incorporating the appraisal of the real estate associated with the business. I include the real estate appraisal and account for the ownership of the associated real estate in the detailed business valuation that is then prepared.

A unique situation that recently occurred included preparing a business valuation for settlement of an estate. The business valuation included the real estate, owned by a separate entity, and valuation of the business that operated on the real estate. At the conclusion of the work, the valuation indicated that operating the company did not generate enough value to support the real estate value. It made more sense to cease operations of the business and liquidate the assets than to continue operating the business.

When values matter, including those that include real estate, secure a business valuation professional to prepare a thorough and objective valuation.

Contact us.

Preparing business valuations for unusual industries

Posted on by Lou Pereira

I am often asked, have you ever prepared a business valuation for ___________ industry?

It is understandable to assume there are distinct differences to account for when developing a thorough business valuation for a particular industry. Many of our clients only need a valuation once or maybe twice in their lifetime, so they assume that industry experience is useful criteria to evaluate a business appraiser.

However, the reality is our process to prepare an objective business appraisal follows the same fundamentals, applying generally accepted principles and our proven process and methodology. That methodology includes the necessary research to fully understand what may be unique about each industry and the specific segment of the industry.

However, there are two situations that present interesting nuances to preparing business appraisals:

1. An unusual or emerging industry
If you think about an emerging industry, there is little comparative data to review and analyze when a business is in a new sector. Technology is a classic example of where a business launch leverages a new technology, such as artificial intelligence (AI) and there are few other businesses to size the market as the market is not yet fully defined.

So, what do we do in these situations where the market is evolving and being defined? We look at how similar and related industries evolved, especially those with similar operating economics and risks.

2. Restricted businesses
Restricted businesses are those that are heavily regulated including liquor stores and gun shops. We have developed business valuations for many such businesses where additional considerations are accounted for in the valuation including regulatory and licensing requirements, the transfer of licenses, and specific operating economics and risks of those industry segments.

Cannabis retail stores are another example of a restricted business. We are currently developing an appraisal for a cannabis retail store and as we prepare the business appraisal we are addressing the above same noted considerations as we do for other restricted businesses.

When values matter, it is important to retain a certified business valuation professional who has the experience and track record to prepare and support how the valuation was determined and why it was determined. The how and why are as important as the final valuation amount; it is the supporting details that will give you and others the peace of mind that the valuation is reasonable, credible, and can be substantiated.

When values matter, we have the expertise and processes to prepare thorough valuations for unusual industries, emerging markets, and restricted businesses. Our proven approach and methodology are both relevant and applicable across industries and business structures including C and S corporations, LLCs, partnerships, and sole proprietorships.

If you need a business valuation whether it be due to divorce, a shareholder dispute, sale or tax matters (settling an estate or gifting shares), please contact us to discuss how we can assist you.

When Values Matter.

Contact us.

Thinking of selling your business? Three reasons to get an objective business valuation.

Posted on by Lou Pereira

Buying or selling a business is one of the triggers for getting an objective, thorough, business valuation. 

It is reasonable to ask yourself, do I need a business appraisal or is a broker opinion of value (BOV) that a business broker offers sufficient?

Three reasons why business owners should get a business appraisal instead of relying on a broker’s opinion of value:

1. The party wants an objective, independent valuation. 

Business owners thinking of selling their business may wonder if the business broker is preparing the opinion of value to secure the business listing. For this reason, business owners thinking of selling should secure a business valuation from a certified business appraisal professional to have an independent, objective valuation that manages their expectations and then engages a business broker to market their business.

2. You want to understand ‘why’.

You want to know why your business was valued where it was. An in-depth, thorough, and objective valuation of your business supports why the valuation number was determined. It presents the supporting evidence clearly and logically. A broker’s opinion of value does not include this level of detail. 

The why can be incredibly helpful for a business owner thinking of selling sometime in the future as the report defines the business value drivers today and presents opportunities that could drive the value more. For this reason, the valuation is informative and provides a roadmap of what actions the business owner(s) could take to drive its valuation higher in future years. I have seen many wise business owners invest in a detailed business valuation to help them drive value in a defined time period to then sell. 

3. There are other parties involved.

This is a significant motivator for hiring an independent business valuation professional who does not have a stake in the valuation. In other words, when there are other interested parties involved in selling the business (e.g., fractional owners), there is a high likelihood a broker’s opinion of value is going to be contested and questioned. Preparation of a thorough and detailed valuation by an uninterested party reduces the concern of being impartial and includes the level of detail that stands up to scrutiny including the IRS or parties who have different motivations or perspectives. 

I work with many business brokers and have great respect for the services they provide. There are many business brokers who eliminate the concern of not being objective (Reason #1 above), by encouraging their client to hire me to prepare an objective business valuation and then the business broker handles marketing the business once the valuation is complete.

A broker’s opinion of value is a useful deliverable, but for the above three reasons, a business appraisal developed by a certified valuation professional provides additional value that is worth considering.

When Values Matter.

Contact us.