Services

When nothing is certain but death and taxes…

Problem
Anne has been advised that she needs to have her consulting firm valued for tax planning purposes. While she is somewhat familiar with the process, having gone through a similar valuation ten years ago, she wants to avoid certain mistakes that were made during the previous valuation. During that earlier engagement, Anne had retained her external auditors to perform the valuation. When that value was challenged by the IRS, it soon became apparent that her external auditors had lacked the valuation expertise and experience necessary to provide a reasonably supported valuation analysis. What qualities and characteristics should she look for in the appraiser that ultimately performs the current valuation?

Issues to Consider
In the ten years since Anne’s last business valuation there have been a number of changes within the valuation profession. For one, the Service has continued to develop criteria for what it considers “qualified appraisers”; furthermore, the Service has also been particularly vigilant in making sure that valuation analyses and reports adhere to generally (and sometimes not-so-generally) accepted valuation theory. Since the Service is often trying to prevent tax payers from underreporting their tax liability, the Service often challenges the valuation components that most substantially impact business value: the financial projections, the discount rate, the discount for lack of control, and the discount for lack of marketability.

It is imperative that an appraiser performing a valuation for tax planning purposes understand the nuances of fair market value, understand the importance of and distinctions between the objectivity and subjectivity of each valuation component, and be familiar with recent tax court rulings and how they might affect the valuation. At Sage Forensic Accounting, we have the expertise and experience to address these issues.

When you’re facing the future…

Problem
Hal, an engineering academician, has decided to leave the world of academia and commercialize his robotics research for application in both the government and corporate sectors. While he knows that his intellectual property has significant value potential, he also realizes that he needs to secure financing in order to develop a viable product. How much financing might Hal need and how much equity should he be willing to give up so that he might obtain such financing?

Issues to Consider
What is Hal’s business strategy? Is he looking to license his intellectual property or to commoditize it into a robotic product, or both? Depending on the assumptions Hal uses, the value of his company could be significantly different. By way of example, the value of the business assuming that it remains in Hal’s management and ownership, would be different than the value that might be obtained from a third-party sale. Furthermore, the risks inherent in Hal’s projected operating cash flows will likely be differently assessed by potential financiers (i.e. venture capitalists vs. banks vs. friends and family vs. potential acquirers), which could lead to differences in the amount of funds he might obtain from different investor groups even for the same equity interest. At Sage Forensic Accounting, we have the expertise and experience to address these issues.

When the rubber hits the road…

Problem
Stan can’t stop arguing with his business partner. They were amicable in college and in the early years of their jointly established trucking company, but lately they rarely seem to agree on the future direction of the business. Stan would like to buy out his partner’s business interest but first he needs to know how much such a buyout transaction should cost him. How can he determine a fair price to pay for his partner’s interest?

Issues to Consider
How much equity does Stan have and how much is he seeking to purchase from his partner. If Stan holds a majority interest he may be subject to minority oppression statutes that will regulate how he must value his partner’s interest. If Stan and his partner hold equal interests there may be issues relating to the synergies associated with having Stan purchase his partner’s interest rather than selling that interest to an outside party. At Sage Forensic Accounting, we have the expertise and experience to address these issues.