Business Valuations

Did you hear that? That loud sigh of relief? That was me exhaling now that it is official that football will be on my TV screen during Sunday afternoons this fall. Now that teams are wrapping up the mad scramble to add free agents and resign players, the football world’s collective thoughts naturally turn to which team is the favorite to win the NFL championship. At the beginning of the year, there are always a number of teams that the pundits believe have a good shot at making a title run. As...

This month's issue of Valuation & Litigation Advisory Insights includes the following articles:
• 3 ways to communicate with a valuation professional
• ACFE survey provides insights on fraud prevention and detection
• What is the "value" of litigation

3 ways to communicate with a valuation professional

Nothing's more frustrating than sitting down for a consultation with a valuation professional and failing to fully understand the process and how an appraiser arrives at a certain value. To...

The concept of sharing is ingrained in us at an early age. In preschool, I can still remember being told to share the classroom toys with my classmates. In the business world, however, the concept of sharing is sometimes cast aside by business owners and investors. In particular, when distributions are not shared equally (pro-rata) by investors, it can have an impact on the value of those ownership interests.

Oftentimes, when businesses make distributions of cash and other assets to their...

Nearly 90% of owners of family-run businesses believe that the same family (or families) will control the business in five years.  Unfortunately, if history provides any indication, only about two-thirds of those businesses will survive to the second generation.  The statistics deteriorate when it comes to the third and fourth generations, with only 5% of family-owned businesses surviving to the fourth generation.  These statistics illustrate a key challenge that today’s business owner faces:...

• Reality TV and Related Party Transactions in Litigious Valuation Engagements
• Impact of Government Contracts on Subject Company Risk
• Tax Court: Subsequent Sale was Best Evidence of Fair Market Value

Reality TV and Related Party Transactions in Litigious Valuation Engagements
By Sean Saari, CPA/ABV, CVA, MBA

My wife loves "reality" TV shows - Big Brother, Survivor, The Bachelor, The Apprentice, pretty much...

I feel terrible for those in the South who are struggling with some of the worst flooding that the U.S. has experienced in years. One pair of shoes I’m glad I’m not in belong to the person who had to decide whether or not to open up the Morganza Spillway. Open up the spillway – save New Orleans, but flood a rural area in which over 25,000 people live. Keep the spillway closed – keep the Mississippi River contained north of New Orleans, but risk another major flood in the city that birthed jazz...

I feel completely surrounded – like the Spartans did in Battle of Thermopylae, chronicled in the movie “300”. Rather than being encircled by Xerxes’ Persian army, however, my plight is much more benign (and much less bloody). I’m bombarded by the amount articles discussing the convergence of U.S. GAAP and International Financial Reporting Standards (IFRS). Exposure drafts for revised standards developed jointly by the Financial Accounting Standards Board (FASB) and the International...

This month's issue of Valuation & Litigation Advisory Insights includes the following articles:

• Active vs. passive appreciation: A deceptively complex issue in divorce cases
• Before and after: Court paints picture of lost profits and other calculations
• It’s not that easy: Determining how costs affect lost profits

Active vs. Passive Appreciation: A Deceptively Complex Issue in Divorce Cases

In divorce cases, it’s common for an interest in a closely-held business or professional practice to be the...

This month's issue of Valuation & Litigation Advisory Insights includes the following articles:

• No Time Like the Present: Discounting Future Damages
• In Valuation, Timing is Everything
• Business Valuation Glossary

No Time Like the Present: Discounting Future Damages

In commercial cases, plaintiffs often recover lost profits they would have earned in the future but for the defendant's wrongful conduct. In those contexts, valuation experts typically discount future damages to present value. Click...

A few months ago, we discussed the proposed amendments to Rule 26 of the Federal Rules of Civil Procedure that would shield draft expert reports from discovery.  These amendments were approved and became effective for all cases filed in Federal Court beginning December 1, 2010.  The impact of these changes, however, runs deeper than just protecting draft expert reports from discovery.  A number of other factors to consider in connection with the recent amendments to Rule 26 include:

• Application...

My father-in-law lives his life according to the “five F's”: Family, Friends, Faith, Fitness and Financial Well-Being.  In the midst of the holiday season, we could probably add another “F” to that list: Food.

Meals with family and friends are often one of the highlights of the holidays.  Preparing dishes for these gatherings can be an interesting adventure, especially for me – someone who is more John Madden than Giada (I have always wanted to try to make a “turducken”).  Working in the kitchen,...

When negotiating for the purchase or sale of a business, the focus of both the buyer and seller is typically on the transaction price. If a $10 million sales price is agreed upon by both parties, what should it matter whether it is the target company’s stock or assets being sold? To both the buyer and the seller, however, the structure of the deal can be just as important as the price.

Imagine you had a quarter, which if presented to a cashier with one side up was worth $.25, but was only worth...

As if it isn’t hard enough to remember someone’s name when you first meet them, business valuation experts typically have a mass of letters after their name, too.  While most people are familiar with the CPA (Certified Public Accountant) designation, there a number of other credentials that indicate proficiency and experience specifically in performing business valuations.  The summary below is a “decoder ring” to some of the more common valuation credentials.  I promise the secret message will...

“How much I make is none of your business!”  This is a phrase valuation experts sometimes hear, particularly when gathering information in contentious domestic relations matters.  Some business owners feel that when a valuation expert asks them how much they make (and how much they would pay someone else to do their job) that the valuator has crossed a line.  “You’re being too nosy – you don’t need to know how much I make to tell me how much my business is worth.”  The typical business owner’s...

As little boys or girls, many of us had an opportunity to play with a ”matryoshka” doll – also known as a Russian nesting figurine.  These were the statuettes which, upon opening the outer shell, revealed smaller figurines with even smaller figurines nested inside of them. I know that every time I spent the day at my grandparents’ house, I was always intrigued by the statuettes and their many layers. What I did not know, however, was how similar the structure of many family limited partnerships...

From business acquisitions to estate planning to shareholder transactions, executives often run into situations in which performing a business valuation is necessary.

The primary pressure point is when it is necessary to determine the value of an ownership interest in a private company (non publicly-traded) for any number of financial and business reasons. Not anything that is traded on exchanges; we’re talking about closely-held companies and small businesses.

In what scenarios would a business...

With apologies to all of you non-basketball fans out there, this blog entry will once again focus on LeBron James and his impending free agency.  After all, it is the primary (only?) sports story in Cleveland this summer.  As my colleague wrote in a previous entry, LeBron’s decision to stay or go this summer will have a dramatic impact the value of the Dan Gilbert’s investment in the Cavaliers.  Here’s another perspective on how LeBron’s decision might be illustrative of the value of...

Click here to view Part 1 of our series and learn more about the stock option landscape or Part 2 to learn more about the accounting and tax ramifications of issuing stock options.

What To Do?

As discussed above, there are significant risks that a company brings upon itself if it decides to issue stock options without properly valuing the options and the equity of the company. Rather than issuing stock options, if a company wants to offer an employee the opportunity to obtain an ownership...