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.
Not all franchises are created equal. This article highlights special considerations when valuing franchises, such as evaluating the risk vs. return, analyzing the franchise agreement and searching for factors that add to or detract from value.
Public company data often is used to value private businesses. But there are important differences in how public and private entities operate. This article explains what’s different and how experts adjust their business valuation methodology to account for the differences.
The merger and acquisition (M&A) market is currently hot in many industries. But, before merging with another business, it’s important to do your homework. This article explains how a business valuation professional can help with buy-side due diligence. In addition to evaluating historical and prospective financial statements, an expert can help identify potential hidden liabilities and misrepresentations. A sidebar discusses the recent withdrawal of the proposed regulations on liquidation restrictions when valuing interests for gift and estate taxes.
The market approach is based on a straightforward premise: The value of a business can be derived from the prices others are paying for similar businesses. But, in practice, this valuation technique isn’t nearly so simple. This article identifies several common mistakes that experienced business valuation experts have learned to avoid when applying the market approach.