Hey
I was wondering if you guys could give me advice on business valuation. My dad has a manufacturing company that has revenue that ranges from 5 mil-10 mil each year. The profits aren’t that big with only 300k. My dad owns 50% of the company. I put on the css that the value for my dad’s portion was 5 million which obviously would leave us with no aid. My question is how do I get a proper valuation instead of the arbitrary number my dad came up with? Would my dad also count rental properties where the manufacturing takes place in the valuation? Thanks for the help.
What’s the COA of your school and how much can your parents pay?
What amount of need based aid do you think the colleges should be giving you?
Do you also have home equity, and do you own property other than your primary residence?
I would strongly suggest you do a google search for “average family income in the United States”. I think you need to know this.
We qualify for aid but just a bit if business was not taken into account. Next year the npc estimates around a 25k grant since my brother would also be in college if business valuation is not taken into account. If we are valuing it completely wrong then it could have a big effect on financial aid. @thumper1 @Madison85.
Ok…I’m editing my original response.
It looks like you got accepted ED to Columbia. That being the case, your profile, and lack of financial aid should have been apparent to you when you got this acceptance.
Now…let me be quite frank here. You say your dad owns half of a business with revenues in the $5-10 million range annually but with profits of $300,000. So let’s use half of that for figures for you.
2.5 million to 5 million in revenues with $150,000 profit.
Clearly, there are some business expenses being deducted somewhere if your revenues are 20 times your profits. Keep in mind that some of the deductions allowed by the IRS for businesses are not allowed for financial aid purposes. They are added back in as income. With a huge disparity like the one you are noting, this likely happened to you.
Re the rental properties…are you saying your dad owns rental properties? Does he rent those to others?
Even without adding back in any deductions, I’m shocked, yes shocked that you think you should be getting need based aid from Columbia…or any other school for that matter. Need based aid is provided to lower income students…not wealthy families who own multimillion dollar businesses, rental properties and the like.
Below is my initial response;
What amount of need based aid do you think the colleges should be giving you?
Do you also have home equity, and do you own property other than your primary residence?
I would strongly suggest you do a google search for “average family income in the United States”. I think you need to know this.
You need to use this form to calculate business income and asset:
http://cumc.columbia.edu/student/finaid/pdf/15-16/BusinessFarmSupplement1516.pdf
The OP was an ED accepted student to Columbia…I don’t know if they declined due to lack of finances, and she is going elsewhere.
BUT…to the OP…when you complete that form collweather linked, make sure every single number on it can be documented for accuracy.
You posted the above in December.
In addition to the business value and income your family has, assets count too. If your parents have $260,000 in a college savings for you, that alone would add $14,500 to your calculated family contribution at 5.6% of its value. But that is a fafsa %age. Columbia is a Profile school and can assess assets at a higher rate.
Unfathomable that a wealthy family’s kid expects need based aid.
Thank you @coolweather for the form. This is what I was looking for.
Like I said above…just make sure that every single number you enter on that form can be well documented by the school for accuracy.
Folks, it’s a manufacturing business. It’s likely that a lot of the expenses (difference between gross revenues and profit) are hard expenses (cost of materials, salaries paid, etc.) that are not added back in. Some things, like depreciation and “softer” expenses, like “meals and entertainment,” might be added back IF it’s a Schedule C business or S-corp.
The OP’s dad is presumably reporting the $150,000 “profit” as income (on schedule C, via K-1, or otherwise); however it is not AGI. Other things would be added (other types of income) or subtracted (certain “above the line” deductions) to get AGI, so we don’t know what that is.
OP is asking about valuing the 50% interest in the business as an asset. That can be done several ways. Typically the value of an ownership interest is some multiple of net profits (NOT gross revenues), depending on the kind of business, but I believe that for CSS profile they ask for the value of business assets, less liabilities (liquidation value). (I’m not sure of this.) So the value (50% for OP’s dad) of tools, equipment, inventory, accounts receivable, cash, etc., less amounts owed. The business value is most likely nowhere near $5 million! Even if it is the appraisal value as an ongoing business, it’s probably under a million.
If the business rents its space, that is an expense. If OP’s dad owns the space and rents it to the business, the rent would be reported as income to him (less rental expenses), but would be an expense of the business. The value of the properties (net equity) would have to be reported as an asset, if they are owned by dad. If they are owned by another entity that dad owns a part of, it gets even more complicated.
Unless I missed it here, nothing has been said about the Dad getting a salary from the business in addition to his share of the profit. It’s cetainly a possibility.