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A Little Bit of Growth is a Big Deal
When valuators use the income approach, long-term sustainable growth is an important assumption. That’s because a small difference in the projected growth rate can have a big impact on business value. This brief article uses an example to look at why long-term sustainable growth rates matter, and notes that, whenever a valuator makes assumptions about expected growth, it’s important to ask whether the assumptions make sense compared with other economic indicators.
The Early Bird Wins the Case: Get Appraisers Involved in Litigation Sooner Rather than Later
Appraisers can be invaluable and essential expert witnesses, but they can help a case even more if engaged from the beginning — as soon as deposition questioning starts. This article offers some advice on how to ensure attorneys and others get the most out of their valuation experts. The article explains the importance of business valuation credentials, valuation experience and familiarity with the industry. It goes on to list some of the most pertinent questions to ask a potential valuation expert witness — or the opposing expert — to determine whether any weaknesses might exist. Areas to address include knowledge of valuation basics and the steps in the valuation process.
Can owners compensation affect a company’s value?
Owners of closely held companies have significant leeway when it comes to setting their own salaries and benefits. But how does that affect business value? Often, to obtain a more accurate valuation, it’s necessary to “normalize” owners compensation. In other words, the appraiser replaces an owner’s actual compensation with the amount a hypothetical “willing buyer” would pay an employee with similar duties, skills and value to the company. This results in an objective, unbiased owners compensation amount, which, in turn, contributes to a more credible business value.
Business Interruption Cases: 6 Ways Financial Experts Can Help
The purpose of business interruption insurance is to place an insured in the same position as if the interruption hadn’t occurred. This article discusses six ways financial experts can help with insurance claims, including estimating losses, mitigating the loss, and proving damages.
Intellectual Property Requires Careful Estate Planning
If your estate includes forms of intellectual property (IP), such as patents and copyrights, it’s important to discuss with your estate planning advisor how to address them in your estate plan. Although these intangible assets can have great value, in many ways they’re treated differently from other property types.
The Excess Earnings Method: When is it Appropriate?
The ecess earnings valuation method was developed more than 90 years ago and, although controversial, it remains in wide use today, particularly in divorce cases. Generally, sophisticated valuation professionals view the method as unreliable and avoid using it. But it continues to be appropriate under certain circumstances.
Divvying Up Assets in Divorce: In-kind distributions of stock may warrant valuation discounts
Divorce courts typically refrain from subtracting discounts for lack of control and marketability when divvying up marital estates that include private businesses. Instead, a spouse is generally entitled to the cash equivalent value of a pro rata share of the entire business. This article, however, discusses a recent noteworthy exception made by the Supreme Court of Rhode Island in McCulloch v. McCulloch. This article elaborates on the ins and outs of the case, noting the importance of considering the rights and liquidity each spouse receives with his or her retained assets.
Asset Valuation: A Key Component of Your Estate Plan
When one makes a noncash gift, a professional valuation can reduce the chances that the IRS will challenge the gift tax return, thus decreasing the possibility of unplanned tax liability. This article examines the three-year statute of limitations during which the IRS can challenge the value that's reported on a gift tax return, along with the penalties for making "substantial" or "gross" misstatements.
Donating Propery? Don't Skimp on the Appraisal
If you donate property to charity, it's critical that you comply with tax rules for substantiating the value of your gift. If you don't, the IRS may deny your entire charitable deduction, even if your valuation is spot-on.
Benefits of Using a Family LLC
For those who are interested in gradually transferringpartial ownership of their assets to their children, a good method might be totransfer the assets to a family limited liability company (LLC) andsubsequently gift membership interests in it to the children. With that inmind, this article provides some information about using a family LLC to transfer ownership of assets.
Using an FLP or LLC? Beware the Step Transaction Doctrine
Either a family limited partnership (FLP) or a limited liability company (LLC) can allow the transfer of a significant amount of wealth to the next generation at a discounted value for gift tax purposes. But if the IRS invokes the step transaction doctrine on the FLP or LLC, the tax outcome may be different from what was intended. This article discusses the doctrine and how to avoid running afoul of it.
5 factors to help determine reasonable compensation
The question of reasonable compensation is frequently debated in shareholder disputes, divorces and IRS inquiries. Owners’ compensation can vary significantly from company to company based on many factors, such as the owner’s education, licenses, training and salary history; the business’s size; and industry trends. This article explains five factors courts use to determine whether an owner-employee’s compensation is reasonable. Typically, a determination of reasonable compensation is objective, unbiased and based on relevant empirical data.
State death taxes can be hazardous to your estate
Now that the federal gift and estate tax exemption is permanently set at an inflation-adjusted $5 million ($5.25 million in 2013), many people are feeling more relaxed about the need for estate planning. But don’t overlook state death taxes. Without planning, these taxes could generate significant tax bills for your family.
Make sure buy-sell valuation provisions are clear
All closely held businesses should have buy-sell agreements. If designed properly, these agreements help ensure a smooth ownership transition if an owner dies or leaves the business. They can also provide an owner’s surviving family members with the liquidity they need to pay estate taxes and other expenses.
Will the real buy-sell please stand up? Divorce courts don’t always accept these agreements
Buy-sell agreements come into play in many situations. They facilitate ownership changes during shareholder disputes and when a partner exits the business. But oversimplified or outdated agreements sometimes come back to haunt divorcing shareholders.
Maximizing the Value of Your Business By Managing Your Working Capital
There are a number of ways that the value of a business can be increased through effective management. Value may be increased by improving the
profits of a business. Profits are normally improved either by increasing revenue or decreasing expenses and taxes. This is an area of management
that receives a lot of attention by business owners. Value can also be increased by reducing the risk of a business. Examples of actions that reduce the risk of a company include purchasing insurance and planning for management succession. Value can also be increased through effective management of the balance sheet. One of the ways to manage the balance sheet is to reduce the need for working capital and this aspect of management is the focus of this article.