Approaches to Not-for-Profit Valuation

Like any task, finding the right solution for your organization requires a thoughtful and deliberate approach. In valuing not-for-profits, Appraisal Economics is equipped to identify and apply the correct approach that reflects the size, structure, and specific needs of your organization.

Not-for-profit valuation is useful for a number of applications. From transitioning your non-profit organization into a profit-seeking entity, or retaining favorable tax status, an accurate not-for-profit valuation can lead to the critical information that suits your needs.

Here are a few of the approaches that our seasoned professionals may use during the not-for-profit appraisal process:

  • Income Approach: This approach focuses on assessing the present value of future cash flow to be generated by the entity. Two primary techniques: ‘income capitalization’ and ‘discounted cash flow (DCF) analysis. Both techniques involve the projection of future operations, and the discounting of the projected income stream to present value.
  • Market Approach: This approach is performed by identifying publicly traded or recently sold entities with similar characteristics to the subject being valued. Relationships between fundamentals, such as revenue, cash flow, or assets are identified, and the computed multiples are then applied to the subject’s corresponding fundamentals. This is analogous to the real estate industry’s measurement of property values based on the prices at which similar properties have been sold.
  • Cost Approach: The cost approach presupposes that a responsible buyer wouldn’t pay more for assets than the replacement cost of the assets’ service capacity. Due to the obstacles to applying this approach to entities with substantial intangible assets, this is approach is most suitable when it comes to valuing industrial and real estate corporations with primarily tangible assets, or entities for whom liquidation is a likely prospect, making it compatible with not-for-profit valuation only in a rare cases.

The Right Approach, The Right Valuation Services
Because your organization has unique characteristics and needs, it’s important to discuss these topics with the knowledgeable professionals at Appraisal Economics to determine how best to value your not-for-profit. Contact us today and take the first step in partnering with Appraisal Economics – the independent financial firm that provides our clients with accurate not-for-profit valuations and supportable results.