- “Did the 2008 Stock Market Crash Cut Your Company’s Value?”
What lessons can private company owners learn about the value of their own business in light of the 2008 stock market crash? Examine specific ways to build, protect and harvest your private company wealth.
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- “Why Planning for a Private Company Sale is Critical… And Reasons Why You Should Think about This Now”
Planning when and how to exit from a private company is often so uncomfortable many owners refuse to seriously think about it. But some change ultimately has to occur. So, the key to success is to give yourself and other owners the time and a process to plan, first at the owner or shareholder level and then at the corporate level. This article explains what this involves and why you should start years in advance.
Download full article (398kb PDF)
- “A Road Map to Your Financial Report”
While many business owners, board members and executives routinely must work with financial statements, many lack the level of understanding they would like to have and find help difficult to get. This article provides a roadmap on how to read your company’s income statement, balance sheet, statement of cash flows and the accompanying notes to get the most out of these critical documents.
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- “Critical Issues Every Private Company Owner Must Address”
Most private company owners fail to recognize that their business is an investment — often their largest — and they must carefully plan to build, protect and harvest their private company wealth. Essential steps to achieve this goal are presented.
• When should I get out?
• How do I get out?
Download full article (371kb PDF)
- “Can You Double Your Company’s Value – Here’s a Blueprint”
Those owners and executives who recognize their private companies are an investment focus on building, protecting and harvesting that wealth. This blueprint explains how to design a strategy to significantly increase your company’s value.
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- “Exit Planning External Threats: Recognize When Your Ability to Compete is Declining”
External threats continually emerge from competitors. For private company owners, critical steps to success are:
• Recognize the threats your company will encounter.
• When possible, build competitive barriers to protect your space; differentiate.
• When your competitive position begins to decline, get out before your value is destroyed.
Download full article (496kb PDF)
- “Protecting Your Private Company Wealth from the Government”
Private company wealth can be effectively sheltered from gift and estate taxes through Family Limited Partnerships. Assets can be transferred to beneficiaries at discounted values to reduce taxes, while the donor retains control over the transferred assets. IRS strategies that oppose such wealth transfers have been upheld in various court rulings. Private company owners should have their partnership agreements reviewed by their estate tax advisor to protect their wealth and minimize their taxes.
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- “Sarbanes-Oxley — More Needless Regulations or a Nudge Toward Better Corporate Governance?”
A primer on private company governance including:
• Four essential governance reforms that every private company should practice to enhance value.
• Legal opinions every private company owner, director and executive should seek.
• The advantages and disadvantages that outside directors provide.
Download full article (337kb PDF)
- “Transfer Wealth at Discounted Values”
Opportunities exist to transfer wealth (but not necessarily control) of your private company at discounted values to minimize the government’s take and maximize your wealth. Many tax planning techniques exist to accomplish this goal, but they require careful planning that withstands IRS scrutiny. Discounts to value that are taken must stand up at the end of the process, which may be in court, so they must be well thought out and documented. Also: Different standards of value are discussed and how they apply differently in litigation.
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- “Why 10% of a Private Company is Worth Less Than 10%”
If 100% of a private company is worth $10 million, a 10% ownership interest in that business may not be worth $1 million and is probably worth significantly less. Private company shareholders should clearly understand how the degree of control and the accompanying degree of marketability of their ownership interest affect its value. They should also appreciate the value management opportunities that such ownership interests create.
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- “Why Do You Own Your Private Company? Part I”
Private company owners who invest for the money — to earn a return on their investment — should clearly understand their motivations and whether or not they are achieving their financial goals. This article provides the steps to measure financial return and illustrates a private company investment that makes sense and one that does not.
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- “Why Do You Own Your Private Company? Part II”
Owners of private companies frequently have significant motivations beyond financial returns that influence their investment decision. This article identifies the most common non-financial reasons for private company ownership and offers owners a blueprint to address these issues to enable the owners to make sound, long term decisions to achieve their non-financial, as well as financial, goals.
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- “Is Your Company Building Wealth — 12 Critical Value Metrics to Constantly Monitor”
Owners and executives in private companies should carefully track 12 key metrics that can have a huge effect on their company’s performance, competitive position and value. This article is a discussion of these 12 factors and how to assess your strengths in each area.
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- “Is Your Shareholder Agreement a Time Bomb?”
While shareholder agreements are meant to provide a process for reasonable and orderly division of profits, determination of share value, and transfer of ownership interests, many agreements only create the need for litigation. Here is a list of key valuation related issues that your agreement should address.
Download full article (364kb PDF)
- “Should Owners and Executives Directly Negotiate Transactions?”
Business owners or executives occasionally must purchase, sell or otherwise combine a company or business segment. This article offers insight on issues that are addressed in the negotiations. It further explains the risks of direct owner or executive involvement in the process and explains how a transaction advisor can provide critical assistance to help owners to achieve their goals.
Download full article (406kb PDF)
- “Six Keys to Private Company Payoff”
What separates a sound private company investment from one that yields low or no returns? Here are six keys to achieving a solid private company payoff.
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- “Succession Blues or Why Business Owners Get Insomnia”
When private company owners work so hard to build wealth in the family business, why is it that so many fail to successfully exit the business? Succession Blues explains four common errors that occur and provides a strategy to avoid them.
Download full article (307kb PDF)
- “Unique Challenges of a Multiple Generation Family Business”
Private companies that are owned or operated by more than one generation of a family pose unique challenges in their quest for long term success. This newsletter identifies key issues for families to address and offers procedures to achieve sound decisions to meet the divergent ownership goals that may be present.
Download full article (405kb PDF)
- “Why Deal Structure is Critical in Merger and Acquisition”
Successfully buying or selling a private company requires a thorough understanding of how a transaction can be structured. These choices affect cash flow, taxes and risk and require careful advanced planning to maximize your benefits.
Download full article (327kb PDF)
- “How to Best Achieve Your Goals: As a Stand Alone Company or Through a Combination”
Private company owners should recognize that their best growth option could be through combining with another company rather than remaining as a stand alone business. This newsletter explains the process required to evaluate options to build your business as a stand alone company or through a combination.
Download full article (397kb PDF)
- “Elements of a Credible Business Valuation”
The owner of a full or partial interest in a business or asset-holding company must seek out the professional opinion of a business appraiser only a handful of times in a career. But the significant financial and legal implications inherent in the need for valuation services make the selection of the right valuation expert very important. How can an attorney, accountant or business owner distinguish a credible valuation from that which should be viewed with skepticism?
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- “The Controversy over the Discount for Lack of Marketability”
It is easy to sell your shares of Microsoft stock. You call your broker or access the Internet, the trade occurs almost instantaneously, and you receive your money in three business days or less. Your Microsoft shares are “fully liquid” because they can be readily converted to cash.
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- “The 50-50 Dilemma”
ABA professionals are often brought in to “value a business for a buyout” when two equal (50-50) owners decide to end their corporate marriage. Because this is an adversarial situation, there are important distinctions to make regarding the nature of the engagement. We have to establish our role as an appraiser or a consultant and define the standard, premise and level of value that we can provide. The owners must also grasp the significant potential differences between investment, fair market, and fair value. Dispute resolution is challenging in these situations.
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- “The Rule of 10: Size Comparability and the Market Approach”
Business valuation professionals use “The Big Three” — common sense, informed judgment and reasonableness — in developing and defending our opinions. We also use market data, case facts and circumstances, logic and valuation theory when they are available. In situations where all we have to rely on are The Big Three, it is difficult to determine which size criterion screen to use when selecting comparable guideline (public or private) transactions or companies. Our opinion is that potential guidelines that have less than 1/10th or greater than 10 times the revenue of the subject company should not be considered comparable in the absence of compelling evidence to the contrary.
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- “Valuation Premises and Discounts”
Two fundamental appraisal concepts sometimes cause confusion: the premise of value, and minority interest discounts. This article explains them and their relationship. There is a discussion of “going concern” and “liquidation” premises, as well as the lack of control and liquidity of minority interests. Two basic relationships exist between premises and discounts:
1. Under a liquidation premise, there are no discounts for lack of control or marketability.
2. Under a going concern premise, there may be discounts for lack of control and/or marketability.
Download the full article (53kb PDF)
- “Quantifying the Marketability Discount”
I have used the benchmarking technique to appraise the discount for lack of marketability (DLOM) for my entire appraisal career, and have published articles and taught courses on it. I am an equally ardent admirer of Chris Mercer’s Quantitative Marketability Discount Model (QMDM), and have also used it on all DLOM appraisals since I learned of it over ten years ago. With that as background, here is my assessment of the state of the art with respect to quantifying the DLOM.
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- “Levels of Value Quiz”
A, B, and C each own 1/3 of a business. There is no agreement governing share valuation and / or transfer. There are no plans to sell the entire business, which is and will remain a going concern. In each case, C needs his shares valued. What standard and level of value would you recommend? The stakes are high; the difference between the values of C’s shares using different standards and levels could be 100% or more!
Download the full article (51kb PDF)
- “Advice for Attorneys on Selecting a Business Valuation Expert Meeting the Professional Standard of Care”
Attorneys are often called on to select an expert to value a client’s business interest or to perform expert witness and litigation support services. There are many business valuation professionals who provide these services. It is the attorney’s responsibility to choose the person with the right expertise and the highest level of competence. There are consequences for the attorney who fails to understand the issues in this selection process.
Download the full article (240kb PDF)
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