The Relief From Royalty Method (Part I of V) This is the first article of a five-part series that focuses on what valuation analysts and owner/operators need to know about one category of intangible property: intellectual property. There are generally accepted cost approach, market approach, and income approach methods that may be used to value intellectual property. This discussion focuses on the application of the market approach. This discussion focuses on one market approach valuation method: the RFR method. The RFR method is often applied to value an owner/operator’s intellectual property for transaction, taxation, financing, accounting, litigation, and many other…
-
-
To Create a Visual Picture Every profession has its own unique vocabulary, and although everyone in the field understands the terms or abbreviations, the public most likely does not. An easy way to help people understand technical terms or a profession’s distinctive vocabulary is to create a “word picture” that links that unique word to some everyday idea or object. The author suggests that metaphors and similes are keys to enabling the client to make these connections. Every profession has its own unique vocabulary, and although everyone in the field understands the terms or abbreviations, the public most likely does…
-
Preserving a Legacy In this article, Roger J. Grabowski, FASA, shares with readers a personal story regarding his friendship. The forthcoming 6th edition is a tribute to Dr. Pratt, a close friend and leader of the profession. [su_pullquote align=”right”]Tribute to Shannon Pratt[/su_pullquote] Introduction I am fortunate to have co-authored several books with Shannon. While I had gotten to know Shannon through conferences as well as through teaching valuation courses together, our collaboration began in August 2006 when Shannon asked me to co-author the Cost of Capital 3rd edition. I had edited portions of and contributed to the first two editions.…
-
A Unique Take on Causation Experts are becoming aware of how the COVID-19 pandemic has affected lost profit analyses that include 2020 and 2021. The pandemic and the slow recovery have created separate causations which may or may not become the proximate cause of a damaged business’ loss. For this reason, the effects of COVID-19 must be considered as an alternative causation to lost profits. The lockdowns across the country, the shuttering of non-essential businesses, and the overall fear which gripped the nation even as the economy was reopening caused a loss of revenue and profits to many businesses and…
-
The Pursuit of Equitable Relief, Separation of Liability, and/or Innocent Spouse Relief The consideration of innocent spouse relief, separation of liability, and equitable relief remedies are important to understand and consider for the purposes for which they were created. This article presents the different options and when one option may be more fitting than another and the relief accorded under each. The merging of two individuals’ lives into the union of marriage has familiar practices: shared checking accounts, title to the marital home, and the filing of a joint tax return are a few of the more common mergers. The…
-
We sometime make decisions that seem right, but in hindsight, we wonder what we were thinking at the time. Over committing is exhausting. In this article, Rod Burkert shares his thoughts on how to get back on track and focus on the main priorities. I don’t know about you, but sometimes I look at an event on my schedule and think: Why did I agree to do this/write that/be there? I’m sure it made sense at the time, but now—when I am trying to get something important done—I’ve got to do this! So how do you put a brake on…
-
In this article, the author shares with readers that a number of practitioners expect a slow 2022; this is a departure from the current work frenzy. He shares his advice regarding what to do in anticipation of that fear. I have been talking to many of my colleagues lately—mainly, those who specialize in tax purpose valuations. Collectively, they have been, and they are up to their a$$es in alligators—resulting from the ongoing influx of E/G work triggered first by the COVID-19 pandemic and then the change in Presidencies. Collectively, they expect they will be much less busy come 2022. Feast…
-
Avoiding the Chaos and Selecting the Proper Methodology Over the past 20 years, business valuation analysts (and the courts) have debated whether there is an S corporation premium vis-à-vis the C corporation. This debate has led to the profusion of models and confusion. Four predominant models currently in use include: the Fannon, Delaware MRI, Van Vleet’s SEAM, and Treharne Model. Each of these models makes a different assumption. As for the similarities and differences of the four models, James Hitcher in this September 30, 2021, VPS StraightTalk Series primarily focused on Van Vleet, Delaware MRI, and Treharne model. The webinar…
-
Part IV: Illustrative Examples Part I of this series discussed the conceptual foundations of the cost approach to intellectual property valuation. Part II described the generally accepted valuation methods within the cost approach to intellectual property valuation. Part III presented the practical measurement procedures in the application of the cost approach. In this final installment of this series, Part IV presents several illustrative examples of the application of the cost approach in several intellectual property valuation scenarios. [su_pullquote align=”right”] Cost Approach to Intellectual Property Valuation Part I: Conceptual Principles Cost Approach to Intellectual Property Valuation Part II: Valuation Methods Cost…
-
What to Ask for and Use? Most small businesses use the cash basis of accounting. Despite that practice, prospective clients will prepare their books in a variety of different ways that do not conform with the accounting cash basis. There are hybrid and accrual cash basis and the business valuation practitioner needs to recognize the differences between these forms of accounting. In this article, the author shares the importance of understanding each and what to do and ask for from the client to better understand the financial disclosures. Which should I ask for? Does it really matter? Isn’t each one…
-
Part III: Practical Procedures Valuation analysts are often called on to value intellectual property for various transaction, taxation, financial accounting, corporate planning, litigation, and other reasons. In this Part III of this series, the discussion focuses on the practical measurement procedures related to the application of the cost approach in the intellectual property valuation. [su_pullquote align=”right”] Cost Approach to Intellectual Property Valuation Part I: Conceptual Principles Cost Approach to Intellectual Property Valuation Part II: Valuation Methods[/su_pullquote] Introduction Valuation analysts (analysts) are often called on to value intellectual property for various transaction, taxation, financial accounting, corporate planning, litigation, and other reasons.…
-
A Conceptual Framework to Consider Real Estate Centered Business Enterprises (RECEs) commonly sell as real property going concerns with elements of real estate, personal property and a business enterprise component. Business appraisers face several challenges with these assignments due to the interdependence of the business with the other assets. Another key challenge for business appraisers with these types of assignments is relying on separately completed real estate appraisals that are frequently incorrectly developed based on an inappropriate premise of value. This article provides readers a conceptual framework to valuing these types of businesses. Real Estate Centered Business Enterprises (RECEs) commonly…
-
Part II: Valuation Methods Part I of this four-part discussion considered the conceptual foundations for applying the cost approach to value intellectual property (including patents, copyrights, trademarks, and trade secrets). Part II summarizes the generally accepted valuation methods within the cost approach. Introduction Part I of this four-part discussion considered the conceptual foundations for applying the cost approach to value intellectual property (including patents, copyrights, trademarks, and trade secrets). Part II summarizes the generally accepted valuation methods within the cost approach. Cost Approach Valuation Methods There are several generally accepted intellectual property valuation methods within the cost approach. Each of…
-
Why it Matters This article examines the major nonconformance issues the average valuator may face, where to find the information necessary to investigate, and how to make the adjustments to conform with GAAP. The adjustments discussed are not exhaustive but do cover the more common adjustments valuators should consider. While a valuation is not an audit, the valuation analyst must recognize material deviations from GAAP and understand how to make the necessary adjustments. Valuation principles require the financial statements used be prepared based on generally accepted accounting principles (GAAP) unless there is a different agreement by the parties to the…
-
Development Standards and the Guidance Provided by the Kohler Decision The General and Ethical standard sets the overall values that must guide every expert in the exercise of his/her profession. One of the key steps in the Development Standard is the site visit and management interview. Some BV experts delegate this important responsibility to either their staff, or a different BV analyst in their firm and believe it or not, in another unrelated firm. Is this acceptable? Is this ethical? Is this professional? My answers are No, No, and No. This article sets forth the author’s view on the subject…
-
Part I: Conceptual Principles This is a four-part article series. The articles and discussion focus on the conceptual principles and the practical applications of the cost approach in the development of intellectual property valuations. Part I of this discussion focuses on the conceptual principles that support the application of the cost approach to intellectual property valuation. Part II describes the generally accepted cost approach valuation methods. Part III describes the practical measurement procedures related to intellectual property cost metrics and obsolescence metrics. Part IV presents several illustrative examples of the application of the cost approach in hypothetical intellectual property valuation…
-
Not all referral opportunities pan out. And there are two reasons why. This article explains those two main reasons. I want that new client. I need that new client. I am perfect for that new client. I deserve that new client. Dang! Why didn’t I get that new client?! Unfortunately, not all referral opportunities pan out. And there are two reasons why. Reason #1: Your Referral Source Didn’t Refer You Ouch! Hinge Marketing asked referral sources to list the top three reasons “most likely to decrease the probability of referring a service provider.” The results: 52%—Absence of visible expertise 19%—No…
-
Center for Medicare & Medicaid Publishes Proposed and Final Rules on Medical Reimbursement Rates The U.S. government is the largest payor of medical costs, through Medicare and Medicaid, and consequently has a strong influence on physician reimbursement. The prevalence of these public payors in the healthcare marketplace often results in their acting as a price setter and being used as a benchmark for private reimbursement rates. Consequently, changes to Medicare and Medicaid payment rates are notable as they may indicate a shift in the greater healthcare reimbursement landscape. Over the summer, the Centers for Medicare & Medicaid Services (CMS) released…
-
Natural Disasters and Claims Submission Best Practices This article’s purpose is to alert practitioners to potential issues that may arise during the claims process as it relates to damages suffered from a catastrophic event, other than COVID-19, during the ‘pandemic economy. Readers need to be aware of and distinguish the two events when filing a claim. Because the influence of the ‘pandemic economy’ on businesses is ongoing, and in many instances specific to industries and geographic locations, practitioners need to be able to isolate the financial components of each and be prepared to articulate if and how the coronavirus impact…
-
From Beginning to End The authors of this article discuss what happens when credit card data is stolen and personal identifiable information is stolen. They recount how this information is used and sold on the dark web and the issues that arise when damages are claimed. The case of Target Corporation Data Security Breach Litigation, Attias et al. v. Carefirst, Inc., and Wawa provides context and insight on what must be proven and how damages are calculated. Ever ponder what happens when credit card data is stolen? I am not referring to the theft of your credit card from a…