BUSINESS VALUATION METHODOLOGY

These are the 25 Factors Affecting Business Valuation we use to value your Intangible Assets.

This is a recent redacted 5 senses inspection report:

November 26, 2024

5 Sense Inspection Report for [Redacted Name]

I have inspected random samples of 200 graphic novel collections owned by [Redacted Name].

The tactile experience of these graphic novels plays a significant role in how readers interact with the medium. Several factors affect the "feel" of a book, including the senses of sight, smell, touch, and feel.

Sight: Sight is the most immediate and engaging sense when inspecting anything. These graphic novels were neatly placed in boxes, away from the elements to prevent damage.
Sound: Not applicable.
Smell: The graphic novels still smell of fresh ink with no musty odours.
Touch and Feel: The graphic novels felt new, with no creases, rips, or folds. Upon visual inspection of random novels, I found them to be in pristine condition.
Taste: Not applicable.

Conclusion

The sensory experience of these graphic novels, when considering the touch/feel, smell, and sight components, easily earns a 10 out of 10. High-quality comics engage all the senses in a deeply immersive way. The paper, binding, and ink used in modern and vintage comics alike create a tactile sensation that enhances the reading experience. Finally, the artwork, colours, typography, and layout make these graphic novels visually rich and dynamic. Based on all these factors, I would grade these graphic novels 10 out of 10 for their sensory appeal.

Ben Khan
Toronto 5 Senses Inspection Report Specialist

Eric Jordan, CPPA
877 355-8004
pindotca@gmail.com

This is how we put the Eric Jordan Methodology to work.

I want you to understand how and why the person with the experience of owning and operating a successful Cobs Bakery Franchise or some other relevant business for 10 years is better qualified to be trained as a business valuator than a 20-year accountant.

On my website www.pin.ca you can see the 25 factors we use to determine intangible asset value. We have a proven methodology, and we show you redacted examples of a 5 Senses Inspection Report.

Last week, a franchise owner and his bank (RBC) chose the Eric Jordan “25 Factors Affecting Business Valuation” process in combination with the “5 Senses Inspection Report” to produce a business valuation accepted by the Canada Small Business Financing Program. I have a good working relationship with CSBFP upper management and an email trail to prove it. Each week brings a different client and bank, but the process remains consistent.

We start where accountants leave off. Accountants focus on minimizing your tax burden. I work higher up the food chain, as a Canadian Personal Property Appraiser (CPPA) and former auctioneer specializing in intangible assets. Tax value is not what matters in a real business valuation — "fair market value" is required by the Canadian Income Tax Act, and that includes valuing intangible assets.

We begin with the balance sheet and assess whether it reflects today’s fair market value — usually, it doesn’t. We fix that. Some cases require an Asset Valuation, which you can find under our heading "Debt Restructuring and Asset Valuation." I am qualified with a proven methodology to value intangible assets. Accounting-based valuators often are not.

When we normalize the balance sheet, we determine the capital that must remain in the company and identify any redundant capital. That necessary capital is charged as a cost in the normalized profit and loss statement. We ensure the business operates at fair market value and that everyone, including the owner and their family, is paid appropriately.

This is where 10+ years of relevant hands-on business experience matters.
(1) Just like the Captain of a Commercial Airline
(2) The lead Surgeon in an operating room
(3) The Art Restoration Specialist handling your million-dollar family heirloom

Your family’s private business deserves the hands-on experience of someone who has owned and operated a relevant private business for at least 10 years. Most accountant valuators do not meet this standard.

Scoundrels use misleading terms like “Free Cash Flow to Owner” and “EBITDA” to inflate value:

"Free Cash Flow to Owner" is not profit. If the owner were paid fairly, the business might be losing money.
"EBITDA" may work for public companies, but is inappropriate for private valuations. It can be used to mislead. Some use it out of ignorance; others with intent.

When you're investing $500,000 of your hard-earned money, you deserve the most accurate estimate of how much of it will return to you as profit — after all obligations, wages, and taxes are paid at fair market value. That’s the true ROI we deliver.

Who would you choose?

1. Recognizing Fair Market Value: A Legal and Practical Foundation

Business valuation is governed by legislation such as the Income Tax Act in Canada and similar laws in the US, UK, Australia, and New Zealand. These frameworks emphasize Fair Market Value, which considers both tangible and intangible assets. Learn more at pin.ca/fair-market-value.

The Challenge: Many appraisers focus primarily on hard assets like equipment and machinery, neglecting the intangibles that often account for the majority of a business’s value.
The Solution: The Eric Jordan methodology ensures that every aspect of a business—both tangible and intangible is identified, measured, and valued, resulting in a comprehensive, legally compliant valuation.

2. Intangible Assets: The Real Driver of Value

Research, such as the Ocean Tomo report, shows that 90% of the value of S&P 500 companies comes from intangible assets. This trend holds true for private businesses, where tangible assets typically play only a supporting role.

Analogy: Picture a vast underground parking lot. While it has intrinsic value, its true worth is only realized when paired with the 40-story building above and around it.
Similarly, tangible assets derive much of their value from the intangible systems and relationships that surround them.

3. Hands-On Experience: The Key to Unlocking Value

Accurate valuations demand more than formulas; they require practical, relevant experience. The Eric Jordan methodology prioritizes hands-on expertise in recognizing, measuring, and valuing intangible assets, similar to other fields that depend on specialized knowledge.

The Experience That Matters Most:
Eric Jordan emphasizes the importance of 10 to 20 years of relevant business owner-operator experience.
This experience ensures valuators understand the daily interplay between tangible and intangible assets and the practical realities of running a business.
This type of hands-on insight is critical for identifying and valuing intangible assets effectively.

Comparative Insights:

A Stradivarius violin is priceless, but only when played by a skilled musician.
A Formula 1 car is powerful, but only with a capable driver.

Just as art restoration specialists must understand every layer of a painting, airline pilots must master thousands of variables to ensure safe flights, and heart surgeons must rely on years of practice to perform life-saving operations, business valuators must have deep, relevant experience to identify intangible assets and assess their value accurately.

4. The Role of the 5 Senses Inspection Report

The 5 Senses Inspection Report prevents fraud and adds a layer of accuracy and confidence by evaluating tangible assets through sight, sound, smell, touch, and taste. It ensures that the physical components of a business align with the intangible assets that drive its overall value.

5. Why Outdated Methods Fall Short

The Problem with Traditional Approaches:

The Hard Asset, Market, and Income Approaches fail to account for the dominance of intangible assets.

Hard assets alone are the smallest portion of a business’s value and cannot reliably serve as the primary basis for valuation.
Market comparison data for private sales lacks transparency, often obscuring whether a sale was Fair Market or influenced by factors like foreclosure, divorce, or other pressures.
The Income Approach fails without a methodology to quantify the intangible assets driving that income.

A Modern Solution for Business Sales:

Internet platforms like Google connect sellers with buyers effectively and affordably, bypassing the need for brokers and their hefty commissions.
A properly explained Fair Market Value Business Valuation Report replaces much of the work traditionally done by real estate agents.
After valuation specialists present the report to buyers, sellers can collaborate with lawyers to handle the remaining steps.

No smoke and mirrors are needed—the valuation does the selling.

6. How the Eric Jordan Methodology Benefits You

Accurate Valuations: A comprehensive analysis of tangible and intangible assets ensures businesses are neither undervalued nor overvalued.
Financing Opportunities: The Canada Small Business Financing Program accepts the Eric Jordan methodology for business and asset valuations.
Streamlined Sales Process: Modern tools and detailed valuation reports empower sellers to achieve the best price with minimal costs.
Clarity and Confidence: Tools like the 5 Senses Inspection Report provide verification and insights, ensuring valuations are thorough, transparent, and reliable.

In loans of up to $500,000, up to $150,000 of intangible assets can be financed.

We’re actively working with CSBFP to increase this limit to reflect the real intangible asset portion in private businesses today.

Eric Jordan, CPPA

BUSINESS VALUATION METHODOLOGY

This is a recent redacted 5 senses inspection report:

Conclusion

Contact Eric Jordan, CPPA