Exit Strategies provides accurate, independent business valuations (appraisals) that meet the highest professional standards. Our valuations are used for:
- Estate, Gift and Income Taxes
- Dispute Resolution and Litigation Support
- Business Transactions
- Buy-Sell Agreements
- Bank Financing
- Other Uses
Estate, Gift and Income Taxes
An independent valuation by a qualified appraiser is often your best defense against an IRS challenge. Exit Strategies provides fair market value appraisals of closely-held corporations, partnerships, and limited liability companies for gifting, estate tax, charitable donations, C to S Corporation conversions and other tax purposes. We value interests in operating companies, asset holding companies and partnerships using appropriate discounts.
The IRS requires that a qualified appraisal be performed by a qualified appraiser in many tax filing situations. Exit Strategies meets these qualifications, and we are prepared to defend our work in the unlikely event of an audit. Our written appraisal reports address the factors listed in Revenue Ruling 59-60 and comply with IRS valuation guidelines.
An appraisal is required to determine the value of a decedent’s interest in a closely held business. Business owners who wish to gift ownership in their businesses must determine value as of the date of gift. When closely held business interests are donated to a Charitable Remainder Trust, a business valuation supports the charitable deduction by the donor taxpayer. Overvaluation penalties can be substantial if the amount claimed for tax deduction exceeds the fair market value of the interest transferred.
Accurate asset valuations are essential to estate planning and wealth preservation.
For estates involving private businesses, a valuation is often the starting point for estate planning professionals as they consider various estate planning techniques that might benefit the business owner.
A valuation should be obtained when an existing C corporation elects to be taxed as a subchapter S corporation (converts to an S corporation). The valuation establishes a tax basis for the corporate assets at the time of the election. The determined tax basis is important because a sale of corporate assets within 10 years after the election is made may be subject to built-in gains tax. Built-in gain is the amount by which the fair market value of an asset exceeds its adjusted tax basis as of the conversion date.
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Dispute Resolution and Litigation Support
Exit Strategies appraises businesses and intangible assets to help settle disputes between owners of closely held companies, and between owners and tax authorities.
Shareholder disputes include dissenting shareholder suits, oppressed shareholder suits, buy-sell disagreements and marital dissolutions (equitable distribution). Exit Strategies objectively applies valuation theory and methods within statutory guidelines, operating in the emotionally charged and often difficult atmosphere of owner disputes. We can participate from initial case evaluation, through mediation, binding arbitration and trial.
Our role is to serve as a consulting financial advisor to an attorney, or as an expert witness providing written reports and/or oral testimony. As an independent appraiser we advocate our findings only and thus bring credibility and impartiality to disputes. We encourage parties to seek “peaceful” resolutions throug mediation and we are frequently jointly retained by two or more parties in a dispute. Our appraisals often help the parties reach a settlement without going to arbitration or trial. We can also be court appointed. Formal reports and testimony are understandable by a judge or jury. We can also review and critique reports issued by other appraisers, and provide consulting services to trial counsel in preparing to depose and cross-examine valuation experts.
Disputes with tax authorities can result from differences of opinion as to the value of a business or business interest. Differences arise because valuation is not an exact science and is based in part on the application of common sense and informed judgment to the facts and circumstances of business. We are experienced at analyzing facts and applying accepted valuation methods to arrive at a defensible opinion of value supported by a report that conforms to professional appraisal standards and IRS guidelines. We are prepared to defend our work in the unlikely event of an audit.
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Sale, Merger and Acquisition Transactions
In almost every transaction involving a closely held business or business interest, one of the first, most important and difficult questions to settle is, “How much is it worth?” Investors need analysis, experience and conclusions they can trust.
In mergers and acquisitions (M&A), sellers need to know what price the business will likely command in the market place; buyers likewise want to know market prices for potential targets. As business intermediaries (brokers), our independent valuation opinions are considered exceptionally credible by potential buyers, sellers, boards of directors, trustees and management when considering and making important transactions.
Exit Strategies provides valuations for a range of corporate transactions, including sales, mergers, acquisitions, subsidiary/division divestitures, management buy-outs, employee stock ownership plans (ESOP's), leveraged buy-outs, capital raising, bank financing, recapitalizations, going private, liquidations and bankruptcy. A client may need a fairness opinion (a third-party confirmation of value) to complete a transaction that has already been negotiated. We evaluate transactions from a strategic or financial buyer viewpoint, based on client objectives and the specific circumstances of the transaction. Mergers require both companies to be valued.
A valuation is usually the foundation for any type of business transaction. Of course, as business intermediaries, our transaction services often go beyond valuation. We also work with clients through all stages of the ownership transfer process (planning, discovery, negotiation, structuring, due diligence, financing, approvals, documentation and closing) to ensure timely and successful transactions.
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Internal Buy-Sell Agreements
Buy-sell agreements define how a closely held business entity or its equity holders will acquire the interest of an owner who withdraws from the business under favorable or unfavorable circumstances (i.e. when an owner retires, quits, is fired, dies, becomes disabled, or withdraws for any reason). Buy-sell agreements provide an objective, pre-determined and orderly means of transferring ownership interests. Without such an agreement, shareholders often find themselves negotiating value with former friends, their families or estates, after the interests of the parties have diverged. Such negotiations are difficult, fraught with uncertainty, and too often lead to litigation.
The valuation provision is a key aspect of any buy-sell agreement. Buy-sell agreements in their best form allow the appraiser to develop a realistic value that gives the departing shareholder a fair price, without crippling the business or diluting the remaining shareholders, and allow new shareholders to buy stock at a reasonable price. Most buy-sell agreements stipulate that share values be based on an independent business valuation. Exit Strategies provides written valuation reports when buy-sell agreements are created or updated, when a trigger event occurs, and periodically during the life of the business.
Some buy-sell agreements use set valuation formulas, which often don't achieve the shareholders' original intentions or consider relevant economic, industry or business conditions on the buy-sell date. When a set formula is to be used, we can design an appropriate formula. Typically, the result is a combination of formulas. We deliver this information in a brief report, then discuss the contents with you. We can also revisit the formulas periodically as the business and circumstances evolve over time.
SBA Business Acquisition Financing
Determining the value of a business is a key aspect of an SBA lender's underwriting process for loan applications involving a business acquisition (change of ownership).
According to SBA Standard Oprating Procedure 50-10-5(c), paragragh (i), page 179, for all business acquisition loans over $350,000, or whenever a buyer and seller have a close relationship, the lender must obtain an independent business valuation from a qualified source. Examples of "close relationships" include transactions between: Employer-Employee; Family members; Co-Owners; and any parties that have an existing, non-arms-length relationship. A "qualified source" is an individual who regularly receives compensation for business valuations and is accredited by a recognized organization.
As Certified Business Appraisers (CBA's), Exit Strategies Group, Inc. is a qualified source for business valuations for SBA loans.
(return to top)Additional Uses for Business Valuations
- Allocation of purchase price
- Bankruptcy / Solvency
- Economic damages litigation
- Eminent domain actions
- Employee Stock Ownership Plan (ESOP) implementation and administration
- Fairness opinions
- Financial reporting and FASB compliance
- Initial public offerings
- Insurance claims
- Intellectual property (IP) and intangible asset valuations
- Succession / exit planning
- Stock options
- Trusts, Estates and Family Limited Partnerships (FLPs)
Feel free to call us at 707-778-2040 to discuss your business valuation needs, in complete confidence.
