Using Forensic Accounting Valuing the small business is how most valuators earn their living. These small businesses pose as much issues to valuation professionals as they do for tax, accounting, and legal professionals by providing these entities with advice. The issues are wide-ranging, and the purpose of this article is not to patronize small business owners; rather, the purpose of this article is to discuss the challenges we in the valuation community face when valuing small businesses and how forensic accounting techniques can help. [su_pullquote align=”right”]Resources: Forensic Accounting Academy Forensic Accounting Specialty Webinars Forensic Accounting Techniques in Business Appraisals Financial…
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To a Key Employee—Part II of II In this second part, the author provides readers an illustration of the decision-making and allocation issues. These include issuing options, phantom stock, and converting the existing entity. Read Part I here.
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To a Key Employee—Part I of II The author encourages, as a starting point, owners of a closely held company to consider numerous issues with regard to the compensation of key employees. If the closely held company operations are successful, valuable and long-term employees sometimes seek to be compensated through an equity ownership in the company. This key employee desire for equity ownership has practical implications as well as taxation implications. From the practical perspective, the founding owners assumed the business risks and financial risks of starting the closely held company. Accordingly, the founding owners understandably feel that they are…
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The Value of a Business is Not Always What it Seems (Part II of II) Personal goodwill is taxed at the individual capital gains tax rate, not the higher corporate income tax rate. Therefore, a credible personal goodwill calculation can amount to significant tax savings. One that is not adequately defensible invites risk of an audit. Every personal goodwill calculation is unique to each business, and the management interview is crucial. In this second part of the article, the author discusses issues that arise valuing identifiable intangible assets if goodwill is derived by first valuing personal goodwill, questions to ask…