The Use of Hypotheticals to Illustrate What Is Known or Knowable In valuation, the concept of “known or knowable” refers to events or circumstances that are (or are not) known or able to be known as of a specific date. This concept is important in the valuation process because every valuation is performed as of a particular point in time, which is referred to as the valuation date. Because the valuation pro ...

(Part II) To look to the future of the BV profession, we must explore the relevant dynamics within the industry. That starts with looking to our past to see what events and milestones brought us to where we are today, followed by ascertaining the economic and demographic trends leading us into the future, and culminating with identifying those trends which will have the greatest impact upon the profession. ...

A Deeper Inquiry to Better Understand Risk and Performance Key performance indicators (KPIs) can provide business valuation better insight regarding the risk profile of the company, revenue drivers, forecasts, and performance of management in the market served. In this article, the author provides insight regarding what metrics are potentially available to better understand a firm that is being valued. When ...

To look to the future of the BV profession, we must explore the relevant dynamics within the industry. That starts with looking to our past to see what events and milestones brought us to where we are today, followed by ascertaining the economic and demographic trends leading us into the future, and culminating with identifying those trends which will have the greatest impact upon the profession. NACVA set ...

To Turn Worthy Dreams into Valuable Legacies This article features an interview where, Nataliya Kalava, CVA, ABV, MAFF, of American Valuations, interviewed Brian Stephens, MBA, CMAP, CVA, CBI, CEPA, of Legacy Business Sales and Acquisitions. Brian’s mission is to inspire and empower great people to turn worthy dreams into valuable legacies. During this conversation, the authors of this article discuss the m ...

(Part II of II) There are special tax considerations related to the transfer of S corporation stock at the time of the owner’s death. Therefore, owners of S corporation stock must be intentional with regard to the risks (and the tax costs) associated with an inadvertent termination of the subject entity’s S corporation status. S corporation owners—and analysts—should be aware that many states tax S corporat ...

(Part I of II) Analysts are quick to identify and quantify the implicit and explicit S status economic benefits in the S corporation business valuation. The objective of this discussion is to summarize the offsetting economic risks associated with an S corporation ownership interest. Analysts should be equally aware—and intentionally consider the risks as well as the benefits—of S corporation status in the ...

How to Avoid Them! A 409A valuation refers to a method of determining the value of a company's common stock. In other words, the 409A valuation is a method of calculating fair market value (FMV) according to the regulations under the Internal Revenue Code (IRC). This valuation can be carried out using various types of valuation methodologies, however, it is important to avoid pitfalls in 409A valuation when ...

Three Experts Convene to Answer and Discuss Pressing BV Issues On March 1, 2022, Jim Hitchner hosted a webinar that featured Michelle Gallagher and Z. Christopher Mercer. While the respective speakers provided some questions in anticipation of the webinar, the audience sent questions and these were answered. The unscripted webinar provided attendees an opportunity to assess what was foremost in the mind of ...

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 ...

What to Watch For and What to Watch Out For Expert testimony is not for the faint of heart. The best expert is that person who gathers trial experience well before the first testimony experience and in that time has not only developed the technical skills—meaning mastered and acknowledged the methodologies—but has also attended depositions, jury trials, and bench trials. The practitioner will also understan ...

COVID-19 and Business Valuation—One Year Later: What Worked and What Didn’t On March 2, 2021, Jim Hitchner, Managing Member of Valuation Products and Services (VPS), made a follow-up presentation, COVID-19 and Business Valuation—One Year Later: What Worked and What Didn’t. This article summarizes the issues discussed during this follow-up webinar. A year has passed since the COVID-19 pandemic first impacted ...

A Business Valuation for a Controlling Interest CPAs are subject to multiple standards. Often, the standards prevent CPAs from exercising their judgment or applying common sense. The author describes this as “miss[ing] the boat.” This article illustrates this and provides an actual example where a group of valuators missed the boat. The purpose here is not to belittle, but to prompt CPAs to reflect on how t ...

Changing Assignments from Fairness Opinion to Business Valuation Commercial damages matters can be challenging and require a flexible mind when “wrapping your brain” around the issues and facts of a particular case. Beginning in the first quarter of 2019 and running through October 2020, I had an assignment which began with a simple fairness opinion letter and ended with my testifying at trial to defend my ...

Expert Assignments and the Impact of COVID-19 COVID-19 has had a dramatic impact on the global economy. As the economic crisis deepened, the Wall Street Journal reported, “The nation’s bankruptcy industry is bracing for a wave of business collapses triggered by the coronavirus pandemic as its ranks have been thinned by a decade of economic growth.” Working on business bankruptcy assignments in 2020 will pre ...

Thinking Through the Valuation Implications of COVID-19 As business valuation professionals, we are required to project the economic future of a business. In the past, valuation professionals used many sources of information to reduce the uncertainties inherent in valuation, key among them: 1) past performance, 2) industry reports, 3) company and/or stock sale data, and 4) cost of capital data. Now, valuati ...

What Do We Do Moving Forward in Time? The coronavirus and the events unleashed by the outbreak were unforeseeable to professionals preparing reports as of the end of 2019. What do we, as valuation and litigation support professionals, do moving forward in time when we are engaged to value a business? Here, the author, Ron Rudich, answers these questions. Gary R. Trugman wrote in his tome, Understanding Busi ...

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 th ...

The Use of Common Sense and Experience The acceptance of tools such as Monte Carlo simulation and Option Pricing models has changed our ability to value options, warrants, and derivative instruments. The list goes on and on. However, as many of us are fond of saying, valuation is as much an art as it is a science. Many of our tools address the science, not so many of them address the art. In my opinion, one ...

It is Not Just About Having a Buy-Sell Agreement A business is a dynamic entity. Businesses are fueled by the passion and vision of its owners. While it is hard to be passionate about administrative aspects of building a successful business, the truth is, some of that stuff is crucial. Take the buy-sell agreement or similar provisions in an operating agreement—think of it as the business will—the "what happ ...