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Archive for Michael Gilburd

Business Valuation, Growing Value And Liquidity Realization (Part XVI Of Book Series)

Business Valuation, Growing Value And Liquidity Realization (Part XVI Of Book Series)-Michael Gilburd

Economic Analysis of Damages – valuation and economic expertise is used for damage analysis and expert testimony to provide an opinion as to losses. Experts opine and testify in the following areas:

Lost Business Profits Analysis

• Total Business Loss
 Forced Market Exit/Shutdown
 Exclusion from Market Entry
 Loss of Business Opportunity
 Partial or Temporary Business Loss
 Product or Service Line Loss
 Business Decline
 Business Interruption
 Delay in Market Entry
 Diminished Robustness of Market Entry/Growth

Other Economic Analyses Pertaining to Damages

• Fair Market Price or Value
• Going Concern Value
• Loss of Reasonable Royalties
• Unjust Enrichment
• Loss of Product, Goods in Process, or Raw Materials
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Business Valuation, Growing Value And Liquidity Realization (Part XV Of Book Series)

Business Valuation, Growing Value And Liquidity Realization (Part XV Of Book Series)

Fairness and Solvency Opinions

A Fairness Opinion is an independent qualified third-party financial expert’s statement as to the “fairness”, from a financial point of view of a specified financial transaction, based on professional judgment supported by collected data. The “fairness” is from the standpoint of a certain designated party or parties (the company or majority shareholders), usually vis-à-vis minority shareholders.

Fairness opinions are established on the basis of a valuation report and require an in-depth analysis of the companies involved and the terms and conditions of the transaction. Fairness opinions are used to support decision making by corporate leadership and to assist shareholders or affected parties in evaluating the terms of such a proposal.

In rendering a fairness opinion, the author evaluates:
 The value of the business or assets transferred or exchanged.
 The value and form of consideration received or paid.
 Available alternatives offering greater value than the proposed transaction, determined by different approaches, including a testing of the market.
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Business Valuation, Growing Value And Liquidity Realization (Part XIV Of Book Series)

Business Valuation, Growing Value And Liquidity Realization (Part XIV Of Book Series)

Compensation Studies – valuation expertise provides a platform to balance shareholder value and tax authority issues to form an opinion as to fair compensation for key employees.

Since the amount of compensation paid to key employees directly impacts shareholder value, a comprehensive approach that includes validation of stockholders’ investment is key to arriving at fair compensation.

The challenge is to determine how much compensation is fair without diminishing shareholder value.

Such studies include:
 Management compensation comparables
 Enterprise value (i.e., Business Valuation)
 Majority and minority shareholder value
 Royalty and commission arrangement impact

Examples of such studies:

 Nasdaq Public Company, Information Technology and Software. A Company seeks to evaluate the compensation a terminated CEO had been earning and the reasonableness of the compensation he was alleging he was due. The result was the CEO settled for a significant decrease.
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Business Valuation, Growing Value And Liquidity Realization (Part XII Of Book Series)

Business Valuation, Growing Value And Liquidity Realization (Part XII Of Book Series)

Section 2 – Financial Analysis Report

The second step is creating an understanding of the financial strengths and weaknesses, a section most valuable to a prudent business owner:

1. Financial analysis helps in assessing Your Company’s financial performance over time. Past sales and earnings, while not a guarantee of future performance, can provide an indication of
future growth potential and can put Your Company’s current performance into a historical context. For example, a company with steadily rising sales and earnings is worth more than one
with little or no growth.

2. Trends and key factors impact results, and comparing financial performance and financial statement ratios with available industry performance measures also provides an indication of the
attainability of future results.

3. Ratio analysis provides a relationship among financial statement accounts that indicates trends for Your Company. These indications of overall probability of future success or failure
often influence premiums and discounts while measuring and monitoring financial performance.

This section analyzes Your Company’s financial performance relative to itself and relative to the industry in which Your Company operates.
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Business Valuation, Growing Value And Liquidity Realization (Part XI Of Book Series)

Business Valuation, Growing Value And Liquidity Realization (Part XI Of Book Series)

► The Blueprint for Building Value™ will quantify the financial value of your business, analyze your business, interpret your vision, and effectively communicate this information to key stakeholders. This tool will improve business performance and heighten your degree of confidence to make the best capital markets decision.

The decision may be to sell the business, finance the business, raise capital, grow or cultivate the business, create an ESOP, insure the business or its Key People, or develop a comprehensive estate or gift tax plan, or a combination of strategies.

This insightful tool identifies and measures Your Company’s strengths and weaknesses − which if properly acted upon will increase the business’s value.

• The Blueprint for Building Value™ is a comprehensive report of a substantive analysis of your business including its financial valuation, operational and structural aspects, and
capital markets alternatives.

• The Blueprint for Building Value’s Questionnaire Workbook is designed to accumulate and put in one place the most critical business information, in a streamlined no-nonsense fashion.

• The benefits that the Blueprint for Building Value™ brings are many (including but not limited to the following):
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Business Valuation, Growing Value And Liquidity Realization (Part X Of Book Series)

Business Valuation, Growing Value And Liquidity Realization (Part IX Of Book Series)

ESOP Valuations and Fairness Opinions are used to initially independently determine if an ESOP is feasible for a company, and subsequently to establish the worth of a company for ESOP purposes.

ESOP:
 Qualified Plan governed by ERISA.
 Required to be invested primarily in the sponsoring employer securities.
 May be used as a corporate finance technique.
 Often used as an exit strategy for a retiring shareholder. The ability for the ESOP to incur debt and the ability for the selling shareholder to reinvest the proceeds on a tax deferred
basis is very attractive.
 Creates a market for the stock of a closely held company and make the purchase of that stock a pretax (deductible) expense.
 IRC §1042
• Rollover – Allows the seller of stock to reinvest the proceeds from the sale in qualified replacement securities (conditioned on a sale of at least 30% of the company’s outstanding
stock and that the reinvestment occur in the next 12 to 15 months).
• A bank or other lender funds the transaction in order to take advantage of IRC §1042.
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Business Valuation, Growing Value And Liquidity Realization (Part IX Of Book Series)

Michael Gilburd - Business Valuations

What Will the Results Show?

Companies and brands are evaluated by their customers and prospects across a range of factors. Your first job is to determine what factors are relevant to each individual situation. This is done any number of ways:

• By conducting a number of interviews with company staff to get their take on what is felt to be relevant
• Exploring previous research, the company may have conducted to determine customer attitudes or satisfaction
• Conducting a small number of telephone interviews with selected clients (both past and present) to surface their attitudes toward the company
• Conducting one or two focus groups to surface attitudes as well as brainstorm factors that would be important to customers in keeping them loyal

Once the relevant factors are agreed upon, data is collected among the appropriate target.
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Business Valuation, Growing Value And Liquidity Realization (Part VIII Of Book Series)

Michael Gilburd on Business Valuations

The Power of Customer Insight Research

For many decades, researchers have worked with companies and brands to assess their position in the marketplace. The same attitude and customer insight research employed by both B to C and B to B companies are powerful tools for generating data that can strongly affect a determination of value. Such research can take any number of forms and include:

• Market segmentation studies
• Awareness, attitude and image studies
• Psychographic and ethnographic studies
• Package and product testing studies
• Advertising and communication effectiveness studies

Whatever research approach is used, the goal is the same: to determine the strength of the company or brand as compared to competition.

Often, though, valuation experts ignore the importance of customer insight research. They fail to realize that by measuring the attitudes of customers and prospects, and producing hard data across a range of factors can greatly increase the value of a company.

Consider how you, and your competition, are perceived by your customers or prospects in regard such elements as:
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Business Valuation, Growing Value And Liquidity Realization (Part VII Of Book Series)

Michael Gilburd on Business Valuations


Goodwill as Measured by Customers

Goodwill is the value of a business entity not directly attributable to its assets and liabilities, i.e., a general term for all the intangibles that go into making a realistic valuation. Simply stated, Goodwill is the difference between the quantitative financial elements of a valuation and the soft, qualitative, image elements that are part and parcel of every company or brand.

Goodwill as Measured in Financial Statements

Goodwill in financial statements is an intangible asset that arises when a buyer acquires an existing business. Goodwill represents assets that are not separately identifiable.

Goodwill does not include:

• Identifiable assets that are capable of being separated or divided from the entity and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable asset, or liability regardless of whether the entity intends to do so.
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Business Valuation, Growing Value And Liquidity Realization (Part VI Of Book Series)

Michael Gilburd on Business Valuations

Intellectual Property Appraisals are essential for valuing:

● Marketing-related Intangibles o Trademarks & Trade names
o Brand names & Logos

● Goodwill-related Intangibles o General Business Going Concern Value
o Professional Practice Goodwill
o Institutional Goodwill
o Personal Goodwill of a Professional
o Celebrity Goodwill
o Right of Publicity

● Technology-related Intangibles o Websites and Web Properties
o Social Media and SEO
o Process Patents & Patent Applications
o Technical Documentation
(Laboratory Notebooks, Technical Know-how, etc.)
o Trade Secrets

● Computer-related Intangibles o Proprietary Computer Software
o Software Copyrights
o Automated Databases
o Integrated Circuit Masks and Masters

● Engineering-related Intangibles o Industrial Design
o Product Patents
o Trade Secrets
o Engineering Drawings and Schematics
o Blueprints
o Proprietary Documentation
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Business Valuation, Growing Value And Liquidity Realization (Part V Of Book Series)

Michael Gilburd on Business Valuations

Buy-Sell Agreements: establish a Plan and a Business Value between the Business Owners of a business that details what is to occur upon the death of one of the Business Owners. (Can also deal with the situation where one of the Business Owners becomes disabled, goes bankrupt, retires, divorces, or wishes to sell their interest in the business.)

When is a buy-sell needed or useful?

• A buy-sell agreement is a necessity if a business (including a professional practice) is owned by more than one person.
• Also works between a single Business Owner and key employees.
• A properly drawn, valued and funded buy-sell agreement can prevent a disaster, such as a forced sale or years in court.

What to expect:

Overall, the buy-sell agreement gives everyone comfort and security that they will receive maximum benefit from the business that they worked a lifetime to establish. Other specific benefits are that it:

 Provides that the surviving Business Owner will purchase the deceased or withdrawing Business Owner’s share of the operation.
 Provides funds to hire a replacement for the deceased employee.
 Provides funds to the widow or widower to replace the salary of the deceased.
 Provides assurance to the surviving Business Owners that the business will continue in a successful manner, while providing the deceased Business Owner’s heirs with funds that will
enable them to meet their needs and pay estate tax and administration costs.
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Business Valuation, Growing Value And Liquidity Realization (Part IV Of Book Series)

The Business Valuation presents valuable information in the manner and style expected by sophisticated institutional investors and their advisors, and is often used as an exhibit to a Business Plan or Private Placement Memorandum for:

What To Expect In A Comprehensive Business Valuation Report

Business Valuation

Contents

Transmittal Letter A
Valuation Summary B
Summary Description of the Company
Asset-Based Approach C
Balance Sheets Analyzed and Adjusted
Net Asset Book Value
Net Realizable Equity
Excess Earnings
Income Approach D
Income Statements Analyzed and Recasted
Historic Cash Flows
Discounted Future Cash Flow
Capitalization of Cash Flow
Market Approach E
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