Understanding the Claims Process and Anticipating Issues The merger and acquisition (M&A) market has evolved over the last several years and faced turbulence in 2020. One increasingly popular aspect of an M&A transaction is the use of representation and warranty insurance policies. After acquiring a business, a buyer may become aware that representations and warranties in the purchase agreement that it relied upon regarding the acquired company were inaccurate. For example, the buyer may learn the company’s historical income was overstated and, as a result, the buyer had overvalued the company. If the buyer purchased a representation and warranty insurance…
-
-
Improving the Business and Positioning it for Sale An exit plan must be fluid and flexible. This article provides readers a summary of the standard processes followed by the author and potential pitfalls. You say succession, I say exit; you say leadership change, I say transition—at the end of the day does it really matter? Change is coming and time waits for no one. Perhaps the following Mark Twain quote sums up the challenges like no other, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” A big…
-
When is there a Duty to Corroborate Data? NACVA’s Standards Board (SDB) was formed in 2016 with the purpose to promulgate NACVA’s Standards, including the development of interpretations, amendments, restatements, and new releases of NACVA’s Standards as deemed necessary and prudent. While being able to influence the very rule governing one’s profession is an astute honor, the most rewarding role performed by the SDB is that of responding to questions that a member has asked or issues they are dealing with. This article addresses data reliability questions and issues, and how it relates to the NACVA standards. NACVA’s Standards Board…
-
Turning Traditional Business Development on Its Head (Part I of II) Business development (BD) used to be simple: do good work for existing clients, be active in your local community, and watch the referrals roll in. To be a successful rainmaker for a firm, all a professional needed was a little confidence, some networking skills, and perhaps the occasional educational presentation. But BD has changed, driven by changes in the behavior of professional services buyers. Rather than ask a colleague about a business question, they began using search engines. In one industry after another, including professional services, digital transformation has…
-
Litigation and Non-Litigation FAQ Interpretations Initiative Business valuation/appraisal standards are promulgated by different business appraisal organizations. The NACVA’s Standards Board was formed to continually review the organizations standards and to ensure that the NACVA’s Professional Standards remain up to date, relevant, and relatively consistent with the standards of the other professional organizations. This article contains the first published Litigation and Non-Litigation FAQ Interpretations. [su_pullquote align=”right”]Resources: NACVA’s Professional Standards [/su_pullquote] Business valuation/appraisal standards are promulgated by different business appraisal organizations. The NACVA’s Standards Board (SDB) was formed to continually review the organizations standards and to ensure that the NACVA’s Professional Standards…
-
Finance & Accounting for Lawyers, Second Edition, by Brian Peter Brining, JD, CPA BVR has just released Finance & Accounting for Lawyers, Second Edition, by Brian Peter Brining, JD, CPA. The purpose of this edition is to provide the reader, lawyers particularly, with a technical overview of accounting principles and methods so the knowledge can be applied in the practice of law. In the finance and valuation sections of the textbook, the reader is introduced to the principles of finance and valuation that underlie monetary transactions that are the subject of contracts, tax matters, disputes, and litigation. The textbook proceeds…
-
Charitable Contribution Deductions (Part II of II) The Tax Cuts and Jobs Act of 2017 and subsequent tax acts, such as the CARES Act, have complicated charitable giving and estate planning. This second part of this two-part article provides an overview of the limits placed on conservation easements. (Read Part I here.) In this second of a two-part article, the limits on the value and legality of conservation easements, charitable remainder, and lead trusts are discussed. Conservation Easements. Taxpayers who donate to a conservation group or a state or local government an easement to restrict development of their property, are…
-
Relating to a Business Interruption Claim (Part II of II) It remains unclear whether business interruptions caused by the current novel Coronavirus pandemic will be covered under business interruption insurance policies because insureds and insurance companies are still arguing whether the pandemic and/or related state and/or local government shutdown orders qualify as “physical damage.” While litigation on the issue has begun, at the time of authoring this article, no courts have made a final decision on that question. The purpose of this two-part article is to consider the nature, timing, and extent of the information and/or documentation that logically should…
-
Relating to a Business Interruption Claim (Part I of II) It remains unclear whether business interruptions caused by the current novel Coronavirus pandemic will be covered under business interruption insurance policies because insureds and insurance companies are still arguing whether the pandemic and/or related state and/or local government shutdown orders qualify as “physical damage.” While litigation on the issue has begun, at the time of authoring this article, no courts have made a final decision on that question. The purpose of this two-part article is to consider the nature, timing, and extent of the information and/or documentation that logically should…
-
Charitable Contribution Deductions (Part I of II) The Tax Cuts and Jobs Act of 2017 and subsequent tax acts, such as the CARES Act, have complicated charitable giving and estate planning. This two-part article provides an overview of the current state of the law as it concerns both. In this first part, the author focuses on charitable deductions. A charitable contribution deduction is allowable for a contribution actually paid in cash or other property before the close of the tax year (regardless of whether the taxpayer is on the cash or accrual method of accounting) and made for the use…
-
Related to Property Contaminated by COVID-19 Not only has the COVID-19 pandemic impacted the health of hundreds of thousands of people globally, but the government response to this health crisis has also created a significant financial burden on businesses across the country. State and local officials issued “stay at home” orders which required the majority of residents to stay at home in states and counties nationwide. Although several states have started lifting these restrictions allowing some businesses to operate to some extent, these businesses are faced with the danger of permanently closing their doors. This article examines whether business interruption…
-
The Bankruptcy Court Weighs-in In Re: Body Transit, Inc. The Bankruptcy Court of the Eastern District of Pennsylvania In re: Body Transit, Inc. addressed how COVID-19 impacts valuations. On August 7, 2020, the Court heard and decided the case. This case proceeded under the Small Business Reorganization Act (SBRA) whereby the debtor’s objection to a creditor’s election to have its claim treated as fully secured under 11 U.S.C.S § 1111 (b) was sustained, and the claim was bifurcated into both secured and unsecured components to be treated according to the reorganization plan. The question of how to value a fitness…
-
An Opportunity for Gift and Estate Planning at Low Valuations The disruption brought about by COVID-19 created certain industry “winners” and “losers.” Many of those that emerged as losers are small and medium-sized privately held businesses such as restaurants, bakeries, gyms, hair salons and spas, and the corresponding real estate holding entities that leased to such businesses, held retail and office space, and even apartment buildings. At this point, the most frequent question asked by business owners is: “Should I reopen my business or not?” While being on the losing side, it may be a good time for business owners…
-
The Marketing Funnel (Part II of II) In the August 2020 article, the author discussed five basic ways website planning and organization can result in sub-optimal results. In this article, the author drills down and looks at ways a website can fail to support a firm’s marketing funnel. The author explores the three key parts of the marketing funnel and shares where poorly designed websites come up short in each stage. In my previous post, I discussed five basic ways website planning and organization can result in sub-optimal results. In this post, I want to drill down and look at…
-
COVID-19’s Impact on Micro and Small Business Valuation As summer comes to an end, while COVID-19 remains a concern, business owners have resumed contemplating their succession and growth strategies. What have valuation analysts learned? In this article, the author shares additional questions that business valuation practitioners should be asking. The hysteria from the huge unforeseen social and economic changes arising from COVID-19 is starting to fade. For business valuators that means we are seeing our normal valuation processes and procedures, with modifications, are sufficient to value micro and very small businesses with revenues under 10 million dollars. These modifications mean…
-
Speaking Our Client’s Language How many times have readers started reading an e-mail from a colleague or peer with questions on a valuation you performed and been simply lost as to why they are asking? As you re-read the e-mail time and time again, you cannot understand where their questions are coming from. You feel confused, frustrated, and lost. In this article, the author proposes that we reflect on the need and value provided to clients by virtue of recognizing the importance of being bilingual. How many times have you started reading an e-mail from a colleague or peer with…
-
Conducting Financial Due Diligence and Quality of Earnings Analysis Financial due diligence and quality of earnings reports provide a third-party analysis of a target company’s current financial position and historical financial performance. When evaluating a potential business acquisition, it is crucial to understand the nature and magnitude of the business’ cash flows. Whether from the perspective of the buyer or seller, the earnings of the business are essential to determine an appropriate purchase price or multiple to be used in pricing the deal. Furthermore, it is in the best interest of both sides of a transaction to accurately represent and…
-
Quantifying the Lost Opportunity of Being First (Generic Entrant) to Market The authors in this article explore the scale of first mover advantage in generic pharmaceuticals and the methods behind quantifying the value of being first generic to market, or the loss when being prevented from doing so. They discuss, how much is it worth to be the first generic entrant to the market? Introduction The recent European Court of Justice (ECJ) ruling that the GSK-Generics UK-Alpharma pay-for-delay arrangement was potentially “by object”-restrictive, confirms the continued regulatory spotlight on treatment of intellectual property and entry in generic pharmaceutical markets.[1] Of…
-
For When a Client Wants to Buy a Business The authors in this article share a checklist developed and provided to firm clients contemplating buying a business. The following are key steps involved when a client wants to buy a business. Buyers and their advisors can use this list as a timeline and road map of the steps that are expected to occur, and what they should plan on doing. A companion posting for clients that want to sell a business can be found at: https://quickreadbuzz.com/2020/06/17/business-valuation-ed-mendlowitz-task-list/ The buyer needs to make sure the seller wants to sell. The seller saying…
-
the Cost of Your Reference Library? Now, there is an abundance of print and online resources that have greatly improved both our report preparation efficiency and effectiveness. Simply put, we have access to better information and are more productive in our engagements. Certainly, clients benefit from that increased access and productivity, but it comes at our ever-growing out-of-pocket library expense. So how do we recover that library cost? In this article, the author describes four practices used by his colleagues. Many of us are looking at the costs of running our practices and wondering how to run a leaner, cleaner…