A recent survey reported an active merger and acquisition (M&A) market for small businesses in 2017 — and that momentum has continued in 2018. This article explains how business valuation professionals can help owners prepare for sale and increase the chances of receiving a premium selling price.
Under the market approach, a business’s value is derived by comparing it to real-life transactions involving similar private or public companies. This article outlines common pricing multiples, such as price-to-earnings and price-to-discretionary-income, and discusses some pros and cons.
Many business owners plan to reinvest their tax savings from the Tax Cuts and Jobs Act (TCJA) into their operations. Strategic investments shouldn’t be made solely on gut instinct, however. This article explains the importance of projecting cash flows and using them to calculate the accounting payback period, net present value (NPV) and internal rate of return (IRR) to evaluate a project’s potential. A sidebar provides a reminder of TCJA provisions that are expected to lower business taxes.
Valuing a business using projected earnings is a complex undertaking. This article identifies common pitfalls that novice or untrained valuators tend to make when using the income approach. A sidebar compares and contrasts two methods that fall under the income approach: the capitalization of earnings and discounted cash flow methods.
One way business valuation experts gauge company-specific risk is to benchmark financial performance over time and against competitors. This article explains critical benchmarks that experts monitor: profitability, liquidity, asset management and leverage. A sidebar discusses the importance of understanding differences in accounting methods when analyzing financial results.
Too often, business valuation experts are hired months after a case is filed or just before it goes to trial. This limits the documents and procedures that they can use to perform their analysis. This article reminds attorneys that it’s important to hire experts early in the litigation process and ask for relevant items during discovery.
Public company data often serves as the basis for valuing privately held businesses. This article highlights four important differences between these types of businesses that valuation experts need to consider: size, level of sophistication, access to capital and internal controls.
Business valuations typically are not designed to unearth fraud. But experts need to be on the lookout for signs of fraud and, when necessary, may expand the scope of the engagement to include forensic accounting services. This article explains how business valuation experts assess fraud risks and adjust their procedures to achieve an accurate conclusion.
Two divergent valuation reports were prepared for a law firm: first, in 2012 for a partner’s divorce in 2012; second, in 2014 for a partner dispute. This article explains how the discrepancy between the conclusions was handled by the courts, highlighting the importance of disclosing prior business valuations and reconciling any discrepancies to preserve the admissibility of appraisal evidence.
Finch v. Campbell, Mo. App., 2017 WL 6329924, December 12, 2017
Shareholders’ agreements often include buyout provisions, governing transfers of stock if an owner leaves the business. These provisions may, for example, prescribe a fixed price, valuation discounts for lack of control or marketability, and procedures for valuing the business during a shareholder buyout. This article summarizes a divorce case where a Louisiana appellate court upheld a trial court decision to partition assets based solely on the fixed value prescribed in the shareholders’ agreement.