In the Formation of an ESOP Mr. Robert Reilly, in a two-part January 2020 QuickRead article, as published by NACVA, provides a detailed and learned discussion regarding the role a valuation analyst might play in the early stages of the formation of an Employee Stock Ownership Plan (ESOP). This paper is not intended to be, in any way, a critique of Mr. Reilly’s presentation, but rather an appendix highlighting some of the many risks a valuation analyst will face when accepting an ESOP related engagement. Mr. Robert Reilly, in a two-part January 2020 QuickRead article, as published by NACVA, provides…
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Robert Reilly Shares His Thoughts on Impressions Should a valuation analyst accept an ESOP valuation engagement? That is the question raised by Michael McKean in his article written in response to the recent QuickRead article series by Robert Reilly. In this article, Mr. Reilly shares his thoughts on the subject matter. I am old enough to remember the early television show, The Original Amateur Hour. I started watching the show in the 1950s, although it debuted on television in 1948 (before my time). I remember the spinning wheel and the phrase, “Round and round she goes, and where she stops…
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In an ESOP Formation Financial Feasibility Analysis (Part II of II) This is the second of two-part article that discusses ESOPs. In this part, the author focuses on quality of earnings, liquidity, and plan design analyses. Owners of a private company who are looking for an exit strategy may consider the sale of all (or part) of the company to an employee stock ownership plan (ESOP). Such a strategy may be particularly attractive to baby boomer private company owners who are seeking retirement and liquidity and who would prefer to see their loyal employees retain a stake in the company…
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About Your BVFLS Practice? There are three ways to deliver professional services. The benefits and detriments of each are discussed in this article. The author also shares his opinion regarding what model(s) BVFLS practitioners should adopt. We’re supposed to be smart, sophisticated, experienced business appraisers who deliver insights that assess value. Why, then, do most of us operate with a one-dimensional business model? You know, the thing that generates our cash flow and having a high “practice specific risk premium.” What would an experienced appraiser say about our BVFLS practices? There are three ways to deliver professional services like ours.…
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In an ESOP Formation Financial Feasibility Analysis (Part I of II) This two-part article discusses ESOPs. Owners of a private company who are looking for an exit strategy may consider the sale of all (or part) of the company to an employee stock ownership plan (ESOP). Such a strategy may be particularly attractive to baby boomer private company owners who are seeking retirement and liquidity and who would prefer to see their loyal employees retain a stake in the company ownership. This article considers the role of the valuation analyst in performing an ESOP financial feasibility analysis. Such an analysis…
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Revising Your Firm’s Brand As a new decade begins, you may consider the state of your firm’s overall brand and if there are any needed changes. When you conduct such an exercise, one of the first elements to consider revising is your firm’s positioning statement. In this article, we will review the five steps to writing an effective positioning statement which can be a strong foundation for your brand. As a new decade begins, you may consider the state of your firm’s overall brand and if there are any needed changes. When you conduct such an exercise, one of the…
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Theory into Practice In our literature and at professional conferences, we often discuss the theoretical aspects of our work. For lost profits this includes discussions on the best method for valuing lost profits (before and after, yard stick, but for) or the optimal discount method (ex ante, ex post, or hybrid). Occasionally, these become academic debates with little impact on our “real life” work. This year, I received an assignment that allowed me to apply some of these theoretical ideas to real life circumstances. This case involved stolen intellectual properties and three separate loss categories: lost royalties, lost profits, and…
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Best Practices: Thought Leadership in Valuation, Damages, and Transfer Price Analysis This fall, Robert F. Reilly and Robert P. Schweihs published Best Practices: Thought Leadership in Valuation, Damages, and Transfer Price Analysis. The book celebrates the 50th anniversary of Willamette Management Associates and is intended to present thought leadership. The topics selected for inclusion are topics that the authors felt did not already enjoy thought leadership discussion in the current literature. As the authors note: “we were not satisfied with the breadth or depth of the available literature in [many of the topics covered]. We usually concluded: Someone should write…
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The Cost of Equity Capital (Part II of II) This is the second of a two-part series article focused on issues that arise estimating the cost of equity capital. In most forensic-related valuation analyses, one procedure that affects most valuations is the measurement of the present value discount rate. This discount rate analysis may affect the forensic-related valuation of private companies, business ownership interests, securities, and intangible assets. This discussion summarizes three models that analysts typically apply to estimate the cost of equity capital component of the present value discount rate: (1) the capital asset pricing model, (2) the modified…
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Not For Your DLOM, For Your Proposal Have you read any of the literature addressing value pricing? Ron Baker is the authority in this filed. In this article, Rod Burkert introduces the subject of pricing options, a menu of services and fee choices prospects can consider, so as to remove or mitigate price as an objection to hiring. Have you read any of the literature addressing value pricing? Ron Baker is the authority in this field. I highly recommend his book, Implementing Value Pricing: A Radical Business Model for Professional Firms, for an introduction to the basics and his Facebook…
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The Cost of Equity Capital (Part I of II) This is the first of a two-part series article focused on issues that arise estimating the cost of equity capital. In most forensic-related valuation analyses, one procedure that affects most valuations is the measurement of the present value discount rate. This discount rate analysis may affect the forensic-related valuation of private companies, business ownership interests, securities, and intangible assets. This discussion summarizes three models that analysts typically apply to estimate the cost of equity capital component of the present value discount rate: (1) the capital asset pricing model, (2) the modified…
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In Nine Easy Steps Professionals marketing for their accounting, valuation, and finance already know that case stories can be powerful tools when selling your services. However, most case studies are dry, dull, and deadly. Even case studies built on the old challenge/solution/results model can be made more compelling. In this article, the author suggests several ways to present a compelling case story. Professionals marketing for their accounting, valuation. and finance already know that case stories can be powerful tools when selling your services. However, most case studies are dry, dull. and deadly. Even case studies built on the old challenge/solution/results…
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And Runaway Valuations In a discounted cash flow analysis, a large portion of a firm’s value is typically attributed to the terminal value, i.e., the value beyond the projection period. Valuation presentations often show or discuss what happens to the firm’s value if the perpetuity growth rate (PGR) is changed. In this sensitivity analysis, it is common to see wild swings in valuations because the terminal value changes a lot when one changes the PGR for a given level of weighted average cost of capital (WACC). However, this large variation in terminal values could be a result of not linking…
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What Forensic Accountants Need to Avoid Doing What do forensic accountants need to know when performing a business interruption loss engagement? What are some of the common errors and pitfalls that forensic accountants need to avoid? In this article, the author will answer these questions as well as walk through the process of performing a business interruption loss engagement. [su_pullquote align=”right”]Resources: Business Interruptions and Lost Profits [/su_pullquote] When natural disasters or damages occur and business operations are interrupted, forensic accountants are an invaluable tool for both the insured and the insurance companies. Forensic accountants are engaged to calculate a fair…
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Observations and Delaware Fair Value (Part II of II) This is the second of a two-part article, read Part I here, that focuses on empirical evidence supporting the size premium adjustment, observations regarding the CRSP size premium 10th decile category, liquidity issues that may account for the size premium, and certain Delaware Chancery Court decisions involving a size premium discussion. In this second part, the author focuses on the latter two points. These are discussed since in the past few years there have been numerous fair value business valuation related disputes decided by the Delaware Court of Chancery that involved…
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A Risk Reduction Strategy? Being self-employed is no longer code for “recently laid-off” or “fired”. The self-employed professional diversifies risk. It is a privilege for the talented, but it also requires motivation and continual sharpening of the saw. How ready are you to assess your talents? Level of risk tolerance? As a practice development coach for our industry, I get a ton of questions asking what it’s like to be a sole practitioner and why did I choose to be one. Well, I’ve been practicing on my own since July 2000, so I have some insight. But I want…
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Observations and Delaware Fair Value (Part I of II) This is a two-part article that focuses on empirical evidence supporting the size premium adjustment, observations regarding the CRSP size premium 10th decile category, liquidity issues that may account for the size premium, and certain Delaware Chancery Court decisions involving a size premium discussion. These are discussed since in the past few years there have been numerous fair value business valuation related disputes decided by the Delaware Court of Chancery that involved certain cost of equity capital postulates. Valuation analysts should be aware of potential issues related to incorporating a size…
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For Finding Guest Blogging Opportunities Have you considered an article you have written on another website, posting a guest blog? What are the benefits? How hard is it to get or become a guest blogger? In this article, the author discusses the opportunities of posting a guest blog. [su_pullquote align=”right”]Resources: Get Published in QuickRead[/su_pullquote] Have you ever considered writing a guest blog to reach new audiences? If you already post blogs on your own site, guest blogging may be much easier than you would think. More importantly, doing so is also a great way to expand your audience, promote your thought…
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Research into recruitment experiences has underlined the potential damage caused to brands by negative processes. These might include failure to provide feedback and to acknowledge receipt of the application. To read the full article in Personnel Today, click: Poor Recruitment Processes Can Damage Brands.
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Buyouts engineered by optimistic CEOs and pessimistic CFOs have the best odds of success. As the U.S.-China trade war drags on, sirens are going off on sales, earnings, and growth forecasts around the world. But one aspect of corporate activity is bucking the gloom: mergers and acquisitions (M&As). Global appetite for M&As is at a 10-year peak, fueled by years of sustained economic growth and low cost of debt. To read the full article in Instead Knowledge, click: The Best CEO-CFO Team for M&As.