A valuation built to hold up in underwriting.

The preparer certifies that, to the best of the preparer's knowledge and belief, the following statements are true and correct.

• •The statements of fact expressed herein are true and correct. The analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions.
• •The preparer has no present or prospective interest in the subject business and no personal interest with respect to the parties involved.
• •The preparer has performed no services for the subject business within the three years before this engagement.
• •The preparer has no bias with respect to the subject business or the parties involved in this assignment.
• •The engagement was not contingent on developing or reporting a predetermined value or direction in value.
• •The compensation for this engagement does not depend on the value concluded, the amount of the loan, or the occurrence of a subsequent event.
• •The analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the standard of value and professional practice described in Section 1.
• •No one other than the preparer provided significant professional assistance to the person signing this report.

Reliance on information

Financial statements, tax returns, ledgers and management representations were accepted as supplied and tested for internal consistency. No audit or review was performed. Where figures are marked illustrative, they were created for this sample and do not describe a real transaction.

Key observations

• •Revenue grew from $7.4M to $9.4M across the periods reviewed while gross margin compressed from 29.5% to 28.0%.
• •Management proposed $245K of EBITDA adjustments. $196K was supported on evidence, $18K of the vehicle item was supported in part, and the $31K growth investment item was excluded.
• •The proposed price of $5.1M sits $0.3M above the concluded value and inside the reasonable range upper bound of $5.2M.
• •Pro forma debt service coverage on the proposed structure is 1.34x against a 1.25x lender minimum.

The valuation assumes the following separately identified assets and liabilities are included in or excluded from the value conclusion. Cash and funded debt are excluded because the transaction is cash-free and debt-free.

Each approach is developed on its own inputs and shown separately. The conclusion follows the primary method, and the supporting indications test it rather than being averaged into it mechanically.

Figure 1: Indications by method, $K

Why these weights

• •Income approach, 40%: captures Harbor's own cash generation, but the rate build-up carries judgment.
• •Transaction approach, 40%: closest evidence of what buyers actually paid for comparable shops.
• •Market approach, 20%: guideline multiples are less size-matched, so they act as a cross-check.

A revenue multiple was calculated to test the scale of the conclusion. Revenue multiples compare business size well, but revenue alone ignores margin, so this indication is not weighted.

Harbor's margins sit below the comparable median, which is why the concluded value implies 0.51x revenue against a 0.52x median. The two figures are consistent once margin is considered.

Reading the result

• •The revenue indication lands within 2% of the concluded value.
• •It does not carry weight because it cannot see the margin pressure noted in Section 4.
• •It is included so that a reader can see the conclusion isn't a scale outlier.

1.1 Purpose and use of the valuation

Chief was engaged to estimate the Fair Market Value of 100% of the equity of Harbor Manufacturing Co. for use by an SBA acquisition lender in evaluating a proposed purchase at $5.1M. The report supports the lender's credit file and is not intended for any other purpose.

1.2 Standard and premise of value

Fair Market Value is the price at which property would change hands between a willing buyer and a willing seller, neither being under compulsion and both having reasonable knowledge of relevant facts. The premise is a going concern with management continuity assumed through a transition period.

1.3 Intended users

Use of this report is restricted to the engaging lender and the buyer for the purpose stated in 1.1. No other person is an intended user, and no other person may rely on it without Chief's written consent.

The following procedures were performed in developing the conclusion of value.

Specifically, the following were not performed

• •No inspection of the premises and no site visit.
• •No appraisal of real estate, machinery, equipment or other fixed assets. Book values are relied on as supplied.
• •No audit, review or compilation of the financial statements.
• •No legal, environmental, tax-structure or regulatory diligence.
• •No independent verification of customer contracts beyond the sample reviewed.

• •Information supplied by management and the seller is assumed to be accurate and complete unless an inconsistency was found, in which case it is noted in the report.
• •Title to the business and its assets is assumed to be good and marketable, free of liens except those disclosed.
• •The business is assumed to comply with applicable laws, licenses and permits. No compliance review was performed.
• •No hidden or unexpected conditions of the business, its assets or its premises are assumed beyond those disclosed.
• •Responsible ownership and competent management are assumed. The valuation assumes a transition period supported by the seller.
• •The conclusion is as of the valuation date and does not reflect events occurring afterward.
• •Future estimates are expectations, not guarantees. Actual results will differ, and the differences may be material.
• •The report is not an opinion on the fairness of the transaction to any party or on the ability of the business to repay a loan.
• •Possession of this report does not carry the right of publication. It may not be used for any purpose other than stated without prior written consent.
• •The report contains confidential information and should be handled under the lender's information-security policy.

2.1 History and general description

Harbor Manufacturing Co. is a fictional custom metal fabrication shop founded in 2004. It cuts, forms, welds and finishes sheet and plate components for industrial equipment makers, construction suppliers and regional distributors.

Services and products

Roughly two thirds of revenue repeats from customers served for three or more years. The remainder is project-based, which makes quarterly revenue lumpy.

Six areas a buyer tests before relying on earnings were reviewed and scored. Higher means more transferable.

2.2.5 Records, systems and transferability

Financial records are clean enough to support diligence without remediation first. Core processes exist but rely on institutional knowledge that is not written down. Quoting and estimating sit with the seller and two long-tenured staff.

• •A documented transition plan of six months is assumed.
• •Two shop leaders have signed retention incentives.
• •Quoting templates should be captured before close.

The seller owns 100% of the equity. Owner compensation of $260K TTM exceeds the $140K cost of a market-rate replacement general manager, supporting a $120K adjustment in the normalized earnings analysis.

Transition assumptions

• •The seller remains for six months at no additional pay beyond the seller note terms.
• •A replacement general manager is hired within the first 120 days at the market rate.
• •No customer is expected to leave because of the ownership change, but the top five are discussed in Section 2.4.

Items that move value up or down are ranked below, weakest first. Each is discussed in 2.2 and 2.3.

How the conclusion reflects them

The 5.9x multiple sits near the middle of the comparable set. Growth and equipment condition support it, while concentration and key-person risk keep it from the higher end of the set. Margin compression is reflected by using TTM earnings rather than the stronger FY 2023 figure.

3.1 Economy

Conditions affecting small-business transactions were reviewed as of the valuation date. The summary below uses illustrative figures and describes how a Chief report presents them.

Manufacturing activity returned to expansion territory while financing costs eased slightly. Both help demand for Harbor's products and the affordability of the acquisition debt, though a higher risk-free rate raises the discount rate used in the income approach.

Figure 2: SBA 7(a) loans approved, thousands per fiscal year (illustrative)

Acquisition lending has grown as a share of SBA volume. Lenders are asking for stronger earnings analysis because acquisition loans rely on a single operating business and a change in ownership.

Harbor operates in fabricated metal product manufacturing, NAICS 332. The industry serves construction, industrial equipment, energy and transportation customers.

Impact on Harbor

• •Demand is cyclical and tied to construction and equipment orders, which is visible in Harbor's quarterly revenue.
• •Input costs for steel and aluminum moved sharply in the review period, contributing to gross margin pressure.
• •Skilled welder availability limits growth. Harbor reports a stable crew with low turnover.
• •Customers regularly dual-source, which keeps pricing disciplined and explains concentration limits.

Four periods were analyzed: FY 2023, FY 2024, FY 2025 and the trailing twelve months (TTM). Statements were taken from the accountant's year-end packages and tied to tax returns.

Fiscal period applied

The valuation relies on TTM results as the primary earnings base. FY 2025 and FY 2024 are shown for trend and are weighted lower because TTM reflects current cost levels and current pricing.

Commentary

• •Receivables rose 8.2% on 9.9% higher revenue. Days sales outstanding held near 43 days.
• •Inventory rose 3.9%, below revenue growth, consistent with tighter purchasing.
• •Net property and equipment declined as depreciation of $182K outpaced capital spending of $112K.
• •Cash increased $58K after debt paydown and distributions.

Table 3: Working-capital indicators

Table 4: Interest-bearing debt at FY 2025

All funded debt is paid at close under the cash-free, debt-free structure and replaced by the acquisition financing described in Section 7.

Table 5: Expenses as a percent of revenue

The business traded across four periods. Revenue moved from $7.4M to $9.4M, a compound annual rate of 12.6% over the two full-year steps. The earnings measure used in this valuation is normalized EBITDA, defined in 4.4.

Figure 3: Revenue and reported EBITDA margin

• •Revenue growth was 9.2%, 9.9% and 5.6% in successive periods.
• •Gross margin fell 150 bps from FY 2023 to TTM as material costs rose faster than prices.
• •Reported EBITDA fell 13% across the periods even as revenue rose 27%.

The $31K growth investment item was excluded because trade-show and marketing spend recurs in every period reviewed.

Normalized EBITDA is the primary earnings base because the buyer will install a paid general manager. Seller discretionary earnings (SDE) is shown for reference only because the structure replaces the owner's labor.

Figure 4: Reported and normalized EBITDA, $K

The income approach uses a five-year projection prepared by Chief from the TTM base. It is not a management forecast. Growth fades toward a long-term rate.

• •Margin is held at the TTM normalized level, not restored to FY 2023.
• •Capital spending of $190K exceeds depreciation, reflecting equipment refresh.
• •Working capital grows with revenue at 16% of the revenue change.

Interpretation

Balance sheet strength and receivable collection are better than peers. Profitability is the weak spot, which explains why Harbor trades near the median multiple rather than above it despite faster growth.

Figure 5: Operating margin against the industry median

5.1 Comparable transaction set

Completed sales of private fabricated-metal businesses were drawn from a licensed transaction database. Twelve records were retained after screening for size, date and available financial detail. The records below are fictional and shown for illustration.

The set was selected by testing Harbor's own industry code first and widening the definition only where the narrower one returned too few completed transactions to be reliable.

Figure 6: Records retained at each step

The final set is wider than a single code, but every record is a fabricated-metal job shop selling for between 0.4x and 0.7x revenue, close to Harbor's profile.

Each valuation measure is one row. The coefficient of variation and confidence assessment sit beside the result so a reader can judge how much to lean on each.

Figure 7: Indications by measure, $K

The EBITDA multiples carry the most weight because they respond to the quality of earnings. The selected indication of $4.8M rounds the median EBITDA result.

Before reconciliation, each indicated value is reviewed for the level of control and marketability it embeds.

Transaction records are sales of control interests in private companies, so they already reflect marketability of a private business. No further discount for lack of marketability is taken. The income approach capitalizes cash flow available to a controlling buyer, so no additional control premium is applied.

Items considered and not applied

• •Key-person discount: addressed in the risk premium of the income approach.
• •Customer concentration discount: addressed in the company-specific premium of 1.5%.
• •Blockage and similar discounts: not applicable to a 100% interest.

The final estimate is tested against the proposed financing and purchase price to confirm it isn't an outlier from the lender's perspective.

The price is within the reasonable range of $4.5M to $5.2M. The $0.3M difference between price and concluded value is covered by buyer equity and a seller note on full standby.

Table 6: Sources and uses at close, $K

Table 7: Annual debt service

Coverage is calculated as normalized EBITDA divided by annual debt service. A lender will usually also test after owner replacement cost and taxes. Those tests are in the QoE report.

Table 8: Concluded value by multiple and EBITDA, $K

Table 9: DSCR by EBITDA

Coverage stays above 1.0x through a 20% decline in earnings, and above the 1.25x minimum through roughly a 7% decline. That is the cushion a credit committee should weigh.

Each method below was developed independently on its own inputs. They are shown to test the primary conclusion.

Why discounted cash flow was not applied

The income approach was applied as a capitalization of normalized cash flow because no forecast of future cash flow was provided for this engagement. Chief's own five-year projection in 4.5 supports the capitalization inputs but is not used as a separate discounted cash flow indication.

Table 10: Capitalization

Net cash flow of $451K divided by a capitalization rate of 9.6% gives an indicated enterprise value of $4.7M.

Table 11: Weighted average cost of capital

The debt cost uses a 10.0% pre-tax acquisition borrowing rate with a 25% tax shield. The capital structure reflects the proposed 60% equity and 40% debt mix and a lender-typical industry benchmark.

No fixed-asset appraisal was supplied, so equipment is carried at book value. The adjusted asset value is therefore a floor and not a value indication. The difference to the concluded value represents goodwill and intangible value of about $2.6M.

The weighted indication of $4,780K is rounded to $4.8M. The reasonable range of $4.5M to $5.2M brackets the lowest and highest indications plus a margin for judgment.

Figure 8: Indication range, $M

Two items remained open at issuance. They do not change the conclusion but are listed so the lender can track them.

Chief prepares business valuations and Quality of Earnings reports for SBA acquisition lending. The firm's valuation work is reviewed by a principal before issue.