Exit Strategies Insights

Industry insights, knowledge base and announcements for business owners and professional advisors

Business Valuation Insights

Hidden Problems with the Price Formula in Your Buy-Sell Agreement, and Solutions

It is tempting to select a formula approach to pricing shares when business partners come and go. After all, a formula is easy for everyone to understand, and in theory at least, inexpensive to apply. If you’re satisfied with getting to a price, any price, then congratulations – job done. But the goal is to arrive at a price that is fair to all concerned. This article discusses some of the unforeseen problems with buy-sell …

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Make No Mistake: The IRS is Serious About Qualified Appraisals and Appraisers

The IRS and the Tax Courts are serious about requiring taxpayers to properly determine the value of non-cash estate assets, gifts and charitable contributions. To avoid having the value of an inherited, gifted or donated privately-held business interest challenged or rejected by the IRS, obtain a qualified business appraisal (valuation) from a qualified business appraiser. The IRS defines a qualified appraisal as one that: is performed in accordance with generally accepted appraisal standards; meets the relevant requirements of …

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Case Study: How One Entrepreneur’s Advisors Enabled a Successful Estate Transfer

I recently had a client who wanted to transfer his medical distribution company to his son and retire with peace of mind — a common occurrence these days. Dad and his CPA requested an opinion of Fair Market Value to set the price for a transfer of stock. After I appraised the company (S corp.) stock at $2.0 million, Dad and Son asked me how to finance the transaction. Dad was reluctant to carry a long-term loan for …

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Twenty Reasons to Know the Value of Your Company

Company owners and shareholders seek independent business valuations at various times for various reasons. Here are twenty situations in which you may want a business valuation: An owner has passed away and a valuation is required to settle the estate per IRS regulations. An owner is getting divorced and needs to have the company or their fractional interest valued to settle the marital estate. An owner wants to gift shares to his or her heirs. Business acquisition financing. Owners …

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Rising Interest Rates and Investment

Since July, the benchmark interest rate, the US 10-year treasury bond, has risen from 1.35% to over 2.55%. That’s a very big move in a short-period. Post-election day the rising rate trend accelerated. We saw a similar spike in 2013, only to see rates retreat. Is it different this time? Valuation Building Block Markets seem to believe that current rates are sustainable and can keep rising given the lower tax and infrastructure spending pronouncements coming …

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Why is That Information Needed?!?

When we begin a business valuation project the first thing we do is provide an extensive document request list. A week or two into the analysis, we send a customized questionnaire to help us understand the business in appropriate depth. Our questions are designed to understand the facts and circumstances of your business well enough to develop a reliable opinion of value. To the extent we can, we try to streamline and tailor our requests so as not to …

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Fair Market Value — is it really fair?

In the business valuation profession, one determines Fair Market Value through analysis of the company and its management structure, the industry in which it participates, economic conditions and trends present in the industry, competitive environment, and any other factors that help to define the risk of investing in the enterprise. This analysis of risk is what many in the appraisal profession term as the subjective part of the valuation analysis, or “the art” of appraisal analysis. …

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Update on Estate and Gift Tax Changes Coming in 2016

Proposed rule changes would limit the practice of discounting the value of stakes in family businesses for estate and gift tax purposes—an update regarding IRS timeline. The U.S. Treasury Department and the IRS are planning to introduce new regulations aimed at estate and gift transfers of closely held family businesses. The new rules would limit the practice of discounting minority stakes in closely held family owned businesses because of restrictions on an owner’s ability to …

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Buried in the Corporate Archives – a Valuation Case Study

A lot of our valuation work is done for the purpose of internal share transfers of private businesses, or buy-sell transactions. In doing this work, we often see that owners have overlooked or neglected to keep important documents up to date. One such document is the buy-sell agreement, which articulates important legal, tax, valuation and financing issues that are important to ensuring smooth share transfers and business continuity. We recently evaluated a holding company with a fair …

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Estate and Gift Tax Changes Coming in 2016?

New rules would limit the practice of discounting value of minority stakes in family businesses. The Wall Street Journal, Wednesday August 3, 2016, page A3 reported that the U.S. Treasury Department and the IRS are planning to introduce new regulations aimed at estate and gift transfers of closely held family businesses. The new rules would limit the practice of discounting minority stakes in closely held family owned businesses because of restrictions on an owner’s ability …

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