Valuators use a variety of analytical techniques and possess different qualifications. But a common denominator is the process that everyone uses to value a business. This article describes the five steps a valuator undergoes: 1) agreeing on engagement parameters, 2) requesting documents, 3) undertaking fieldwork, 4) preparing the report, and 5) providing expert testimony.
Revenue Ruling 59-60 of the Internal Revenue Code has been around for nearly 60 years. The IRS originally created this landmark publication for gift and estate tax purposes. Today, it’s often referenced in valuations prepared for other reasons, including divorce cases and shareholder disputes. This article highlights its definition of fair market value and lists various factors to consider when valuing a closely held business interest. A sidebar discusses what this guidance says about the use of weights and averages in business valuation.
Whether intentionally or not, the “lower value” side of divorce, shareholder or other conflicts may obscure or ignore certain assets to bolster its case. To establish a fully rounded value estimate, financial experts have to look harder. They must enter the shadowy world of hidden assets. This article explains the kinds of financial data experts look for and how they detect hidden assets.
A defense attorney will often wait until the plaintiff’s attorney submits a valuation report. Then, the defense hires its own expert to prepare a “rebuttal report,” rather than pay for a separate full-blown valuation report. This strategy can be a cost-effective way to poke holes in the opposing expert’s analyses, but rebuttals are only effective when they’re detailed and accurate. This article explains reasons clients opt for rebuttal reports, the preferred reporting format and the level of detail courts have come to expect from rebuttal experts.
Business appraisers who serve as expert witnesses in court face two daunting tasks: They must capture the attention of a judge or jury and make complex financial analyses easy to understand. This article provides tips on how to use impactful visual aids to break up the monotony and drive home key points in an expert’s oral testimony and written reports.
Even two unbiased, equally qualified valuation professionals applying sound appraisal practices are unlikely to arrive at exactly the same number. In fact, valuation differences of 10% or more are common — even under ideal circumstances. In litigation, when neither valuator will concede an objective third expert can help settle the dispute. This article discusses third expert selection and uses a hypothetical case to illustrate the important role a third expert can play.
Accounting and appraisal are interrelated disciplines. After all, financial statements are the foundation for valuing a business. So it’s imperative that business valuation experts understand accounting terminology and how to adjust for material differences in accounting methods.
Typically, the starting point for measuring a company’s earning power is its financial statements and other documents that reflect historic financial performance. But often, these documents contain entries that can distort a company’s true earning potential. For this reason, valuation experts often adjust a company’s financial statements to provide a picture of its financial performance under “normal” conditions. This article looks at three common areas of adjustment and explains the circumstances under which a normalization adjustment is appropriate.
Business valuation experts are prepared for a number of reasons: estate planning, divorce settlements and shareholder litigation, just to name a few. And while the parties in these various matters may focus solely on the valuation amount, a valuation expert will also be focusing on the valuation date. This article explains why, under certain circumstances, an executor may elect to use an “alternate valuation date” rather than one that’s customarily used.
How assets are split up in a divorce can have significant tax consequences, especially when the marital estate includes a private business interest. Valuation is just part of the picture. Equitable distributions require the parties to premeditate tax issues, too. This article lists common marital assets allocated in divorce settlement agreements. It also discusses how taxes affect asset value and explains how corporate redemptions are taxed. A sidebar looks at real estate and other investments that may create taxable gains when they’re sold.