Normalization of Income: Where Business Valuation Meets Forensic Accounting At the Legal Intelligencer blog, Terry Silver explains that since buyers and sellers often have differing ideas of a business’ true fair market value, normalization is usually a required part of any M&A deal: The valuation of virtually every closely held business requires normalization adjustments. Although these adjustments may be made to either the balance sheet or the income statement, the most common normalization adjustments are imposed upon the income statement. The International Glossary of Business Valuations Terms defines “Normalized Earnings” as “the economic benefits adjusted for non-recurring, non-economic, or other…
-
-
M&A Will Likely Pick Up in New Year An Ernst & Young survey indicates longer term appetite for deals has increased, reports Anthony Noto at Mergers & Acquisitions. Private equity firms are more confident in the worldwide economy, suggesting an increase in M&A activity for the New Year, according to a report Ernst & Young released Wednesday. In the longer term, the appetite for M&A increases as companies are less likely to feel inhibited by the volatile economy and political unrest in Washington DC, the survey said, with 68 percent of larger cap respondents believing credit availability is either stable…
-
Study: Expert Witnesses Put Litigation at Risk with Wrong Benchmarks to Calculate Damages Marks Paneth & Shron reports that expert witnesses who rely on assumptions that overlook business reality often cause their testimony to be excluded on a Daubert challenge. Donald M. May, Ph.D., current director in the Litigation and Corporate Financial Advisory Group at Marks Paneth & Shron LLP, has published a commentary in the Marks Paneth & Shron Library examining the critical mistake expert witnesses often make . In the commentary, Dr. May discusses: Why benchmarking shouldn’t be a “one size fits all” approach The risks of relying…
-
Visualizing the Middle Market The Middle Market not only accounts for a third of private sector GDP and jobs, but over the last four years it’s been leading the way in terms of viability, resilience and growth, according to a new study from GE Capital. When it comes to economic development and employment growth, people tend to focus on either small local businesses or large multi-national corporations. But what about the gap in the middle? To learn more, GE Capital partnered with The Ohio State University Fisher College of Business to conduct the largest-ever study of American mid-market businesses. A new…
-
Lessons from a Dying Business Redbox has built a successful DVD kiosk business, but its days are numbered. Here’s why that’s not such a bad thing, report Karl Stark and Bill Stewart at Inc.com. You’re probably familiar with Redbox, owner of those DVD-rental kiosks that you see parked outside of just about every neighborhood grocery store or pharmacy. Redbox is an excellent example of how to create growth from a business that will ultimately die. All growing companies can benefit from thinking more like Redbox. Redbox has grown over the past decade by offering the convenience of DVD rentals…
-
PwC Global Economic Crime Report: Cybercrime a Growing Threat A new PwC report calls cybercrime one of the top four economic crimes – just after asset misappropriation, accounting fraud, and bribery/corruption, according to recent reporting in AccountingWeb. What is cyber crime? The PwC report, which you can read here, defines it this way: For our survey questionnaire, we defined cybercrime as: ‘an economic crime committed using computers and the internet. It includes distributing viruses, illegally downloading files, phishing and pharming, and stealing personal information like bank account details. It’s only a cybercrime if a computer, or computers, and the internet…
-
A First: Law Firm Finds New Life, Not Death, in Bankruptcy The Wall Street Journal’s Law Blog Jacqueline Palank reports: A South Florida law firm recently used bankruptcy to do something no one in the legal industry has done before: sell itself to another firm. Companies across corporate America, from Blockbuster to General Motors, have sought court protection while they try to sell continuing businesses to potential white knights. But until last week, law firms usually used bankruptcy to shut down. So the $7.8 million cash-and-debt sale of midsize law firm Ruden McClosky out of bankruptcy to fellow South Florida law firm Greenspoon Marder made…
-
Tax Law Update Trusts and Estates Magazine’s David Handler offers a summary of significant IRS updates on a handful of important laws: Internal Revenue Service extends filing and payment deadlines for estates of decedents dying in 2010 — In Notice 2011-76 (Notice), the IRS provided relief for the estates of decedents dying in 2010 (2010 estates). The filing deadline for the Form 706, federal estate and generation-skipping transfer (GST) tax return for 2010 estates was originally Sept. 19. With the new deadline fast approaching, the IRS published this Notice on Sept. 13, providing relief for estates in several respects, including an automatic…
-
Firehoses, Drinking Fountains, and Intrinsic Value CFA Magazine’sChristopher Wright recently spoke with four analysts about the challenges of identifying key share price drivers among the torrent of minutiae. The analysts cover a number of topics, and come from a variety of firms and industries. Here’s J.B. Groh, CFA, senior research analyst at D.A. Davidson in Lake Oswego, Oregon: [It is largely] about the importance of fundamentals over the longer term. Ultimately, the value of anything, whether it’s an investment property or a share of stock, comes down to cash flow, timing of the ash flow, growth, and risk. Of course,…
-
IRS Begins Scheduling Tax Preparer Competency Tests The Internal Revenue Service is moving into the second phase of its tax preparer regulation initiative by beginning next week to schedule the first competency tests for tax preparers, reports Michel Cohn at Accounting Today. The IRS said Tuesday it is launching the new competency tests for Registered Tax Return Preparers as part of a larger initiative to increase its oversight of the tax prep industry. Last year, in the first phase of its efforts, the IRS required all paid tax return preparers to obtain a Preparer Tax Identification Number. Those tax return…
-
When ‘Friending’ Becomes a Source of Start-Up Funds Social networking is pretty good for keeping abreast of far-flung friends. Could it work for entrepreneurs looking for investors? That’s the question Sarah E. Needleman and Angus Loten pose over at the Wall Street Journal Small Business blog. Critics say the idea is dangerous for investors, and even dicey for the entrepreneurs. Yet, it is gaining traction with small-business owners from the Bay Area to New York, who say they eagerly await an opportunity to sell stakes in their businesses through social networking—a process known as crowd funding. The House Financial Services committee last week…
-
CPA Site Solutions Announces Social Media Marketing System CPA Practice Advisor recently reported that CPA Site Solutions, which develops and hosts web sites for accounting firms, has added social media features to update sites with accounting and finance tips via Twitter, Facebook, and LinkedIn. The Social Media Marketing System feature alleviates [the problem of accountants too busy to update their websites] by automatically posting financial and tax tips every week, straight from your accounting website to your LinkedIn, Twitter, and Facebook accounts. “You don’t have to lift a finger because it’s all automated,” says Brian O’Connell, President of CPA Site…
-
The Exit Planning Institute Opens Northeast Ohio Chapter The Exit Planning Institute (EPI), NACVA’s Exit Planning partner and issuer of the Certified Exit Planning Advisor (CEPA) credential, has opened a new chapter that will be serving the Cleveland and Akron region in Northeast Ohio. The chapter president will be Christopher M. Snider, a partner at Aspire Management in Cleveland. Christopher M. Snider, CEPA and Exit Planning Institute Northeast Ohio Chapter President The chapter currently has approximately 30 members. Its mission is to build collaboration among professional advisors in order to promote common business interests, develop educational events for business owners and…
-
Which States are Poised for Job Growth? As the U.S. jobs market digs its way out of the recession, gains aren’t expected to be evenly distributed. But some of the hardest-hit regions may also see some of the best growth, according to a new analysis, writes Phil Izzo at the Wall Street Journal Real Time Economics blog. Forecasting firm IHS Global Insight looked at which states will have the strongest rates of expansion through 2017. Do your own research with an interactive graph: Visit this site and click on any state to find out its projected jobs growth rate in…
-
Fraud and the Family Business: It’s Not So Unusual The dynamics of a family-owned business are like no other, writes Robert Rothbort at Accounting Today. There’s usually a great atmosphere of trust. But that can leave family businesses uniquely vulnerable to fraud. Here are some common schemes: • “Ghost” employees. The family member overseeing payroll creates “ghost” employees that do not exist and arranges for their paychecks to be direct deposited into their own bank account. • Inventory fraud. Family members with easy access to inventory steal it and then sell it themselves for profit. • Credit card abuse. Family members put…
-
How to Pay Less in Taxes Norm Brodsky answers a reader’s question at Inc.: To begin with, [the reader] needs to start his planning process early enough to allow him to end the year with as little cash profit as possible. That’s the idea if you have a young company using cash-basis accounting. I gave him a hypothetical — and oversimplified — example, just so he’d have a general idea of how it works. Let’s suppose that you finished last year with $20,000 in cash. If you end this year with $50,000 (not including new capital you may have added during…
-
FASB Proposes Changes in Investment Accounting Michael Cohen reports at Accounting Today: The Financial Accounting Standards Board has released two proposed accounting standards updates to clarify the criteria for investment company accounting and develop guidance for investment property accounting. The proposed update for investment company accounting stems from the efforts of FASB and the International Accounting Standards Board to develop consistent criteria for determining whether an entity is an investment company. Under U.S. GAAP, investment companies carry all of their investments at fair value, even if they hold a controlling interest in another company. The primary changes proposed by FASB relate to…
-
Estate-Tax-Basis Form Still Not Available Arden Dale at the Wall Street Journal’s Financial Advisor blog: A Florida resident in her seventies lost her husband in early 2010. The couple had $8 million, but how much will remain after taxes is still a mystery. The key IRS form has yet to appear since last year’s estate tax law changes. Those changes have created a “practically unsolvable conundrum,” said Renee Kwok, president of TFC Financial Management in Boston, which manages roughly $600 million in assets. The firm handled all of the estate for the widow. Lawmakers gave 2010 estates a one-time choice…
-
Chart: The Cost of Buying Small Business Companies Scott Shane at Small Business Trends reports: Many people think buying a business is expensive. But, actually, the typical private company sells at a low price. According to BIZCOMPS, Business Valuation’s data base of private company sales, the median price of the 12,022 companies sold since 1995 on which Business Valuation has data was $166,000, less than half of one year’s revenue. As the chart below shows, only 5.8 percent of private businesses sold for more than $1 million. Nearly two-thirds sold for less than $250,000. Why does it cost so little to…
-
Dentist’s Employment Contract Kills Personal Goodwill Argument – Ninth Circuit Rules Peter J. Reilly on Forbes.com: Tax planners generally think that clients are well served by their thoroughness. I have little doubt that this is generally the case. Every once in a while, though, that little bit of extra work can be counterproductive. In the case of Dr. Howard the extra step, that a less thorough planner might have neglected was the employment contract between Dr. Howard, the dentist and the Howard Corporation of which he was the sole shareholder. The Howard Corporation was a C corporation and when…