As pertaining to business valuation, a firm, equity or asset may be valued. For
the purpose of this article, we shall focus on equity valuation and firm
valuation.A firm valuation is the value of all the assets of a company
before subtracting any outstanding debts the firm may have. An equity valuation
is the value of a firm minus all debts the company may currently have in its
books.However, there are some valuation guidelines which aid business
valuation analysts to select between equity and firm valuation.
One of the financial metrics mostly used for firm and equity valuations is the discounted
cash flow method.
The process:
       
Project cash flow
Growth rate
projections (Weighted average)
Gather most recent data
Compute
cost of capital
When to utilize equity
valuation:
For companies that
borrow at a constant rate
During valuation of stock
When to value firm:
For firms that borrow at a
high frequency.
For companies that
have some missing data on capital
borrowed
During valuation of firm
During the process of business valuation, the data used when valuing a
company must be applicable to the type of valuation done. For example, during
equity valuation process,equity discount rate used must be the Capital Asset
Pricing Model while that of firm valuations process must be the Weighted Average
Cost of Capital.

Knowing what to expect and how to respond are the keys to being an effective
expert witness.
 A CPA who performs business valuation and other
litigation services often must appear as an expert witness in trials involving,
for example, a disenfranchised shareholder, a dissolving partnership, divorcing
spouses, a tax dispute or lost corporate profits.The most exciting
part of litigation services is the trial and, particularly, the
cross-examination. But whether the CPA will be a shining or a falling star
depends on his or her effectiveness on the witness stand.
 This article provides information and illustrations of some effective and not-so-effective
ways of presenting expert witness testimony in business valuation engagements.
It also offers pointers on how the CPA can help the attorney approach a client's
case and the opposition's expert witness.
 THE RIGHT FOOT
 The voir dire--the expert qualification process--offers the opportunity to make a
good first impression on the fact finders--the judge or jury--by introducing the
witness to them on a personal and not purely professional basis (see the sidebar
on page 81 for an overview of the trial process). The most effective first
statement is a response....To read more,click here...

Proper planning requires CPAs to examine existing employment agreements with
shareholder-employees.

EXECUTIVE SUMMARY  

 THE IRS SAYS DISTRIBUTIONS of
customer-based intangibles to shareholders are taxable. When a firm or
corporation distributes to its shareholders all of its assets, both tangible and
intangible, and ceases doing business, the IRS says there is a taxable
distribution of its intangible goodwill.
 THE CRITICAL ISSUE FOR TAX
PLANNING is whether the assets distributed are considered property under IRC
code section 336 and whether the corporation owns them. 
THE QUESTION OF WHO "OWNS" the clients and customer-based intangibles
turns on whether there is an employment or noncompete agreement in effect at the
time the intangibles are distributed. Without such an agreement, client goodwill
attributable to the personal characteristics of a shareholder isn’t a property
right belonging to, or transferable by, a firm. 
A NONCOMPETE COVENANT, to be enforceable, must reasonably reflect an
employer’s protectable interest in both the nature and the scope of the
restraint on the employee. Trade secrets, special processes, patents and
proprietary information are among an employer’s protectable interests, but how
noncompete provisions create an employer property right isn’t clear. 

To read more,click here...

   



  


 
 

 

 

 

 Would you go to a dentist for heart surgery? They are both doctors?
Like any other professional service, such as legal services, medical care, or
accounting services, the price of appraisal services should always be one
consideration in selecting the professional or professional firm. However, it's
usually not appropriate to shop for the lowest priced vendor, or to use
competitive bidding to obtain the lowest price. The heart patient, whose life
may depend on the skill and judgment of his surgeon, wouldn't be smart to put
his surgery out to bid. Similarly, the client whose financial fortunes may rely
on the quality of work or the effectiveness of testimony by his valuation expert
should probably not make a decision on hiring an appraiser based primarily on
lowest fees.


In a business appraisal, the low-end software-driven product should be
approached with caution. In general these products are designed to give quick,
and not necessarily accurate answers to price shoppers, and by design deny the
client the expertise of the appraiser's many years of valuation wisdom. Often
these are done by part-time appraisers, or are loss leaders intended to lure
clients into more expensive consulting agreements. People should beware of any
appraiser who is willing to render an opinion of value without a personal
interview, and hands-on inspection of the company's financial and administrative
records.


The relationship between quality of services and fees is not linear: there
are factors unrelated to the quality of the services that affect the fees
demanded for them. For example, the basic amount of work the appraiser has to
perform for an appraisal is driven by the professional standards he must follow
in conducting the appraisal. The emergence of the Uniform Standards of
Professional Appraisal Practice (USPAP) as the controlling rules for appraisal
engagements has increased the amount of work appraisers must do, even for simple
appraisal assignments.
The largest single driver of appraisal cost though, is the purpose to which the client
 desires to put the appraisal result. Appraisals for use as informal pricing guides
for sellers or buyers require the least amount of work on the continuum of effort,
 and appraisals done for use in ontentious litigation probably require the most effort.
 In between these extremes are appraisals for other purposes, such as buy/sell agreements,
partnership agreements, estate planning, asset allocation, divorce,
etc.
Preliminary Analyses, Value Studies - $3,000 to $10,000.


These kinds of less-than-comprehensive valuation efforts can be well suited
for situations where a client needs a ballpark estimate of value, perhaps as a
starting point for sales negotiations, or to achieve a better understanding of
the value drivers in his company. Often this type of assignment is begun with a
Value Study to identify the value drivers of the subject business entity, and
followed-on with consulting over a period of time to prepare the business and
the owner for subsequent sale.


Limited Partnership Appraisals - Value in Real Property Assets Only -
Discount Study - $3,000 to $10,000.
The typical setting for this kind of
appraisal is a Family Partnership formed to protect real property assets from
estate taxation. Usually the partnership has no income distributions to the
limited partners, and all of the profit is paid to the General Partner. The
value of the entity is based on its assets, and the values of the real property
assets are provided to us by the real estate appraiser. Our assignment is to
estimate the value of small minority limited partnership holdings in the entity,
and to assign marketability and minority discounts from the enterprise value, if
applicable. These projects typically involve only a summary report. You also
need to be aware that at some point the IRS may be looking at this. Maybe you
want to use a firm with ex IRS people on staff?
Comprehensive Appraisal -
Summary Report - $7,500- $35,000.
This is the most common type of assignment,
and calls for the application of a full complement of appraisal procedures. This
is the type of engagement suitable for most kinds of litigation, including
family law, partnership disputes, shareholder oppression litigation, forced
buy-outs, business torts, contract disputes, etc. The chief reason that
appraisal engagements for litigation cost more is because the analysis and
reporting must be performed to a standard of thoroughness that will allow them
to survive rigorous cross-examination by opposing counsel. This takes time and
costs money, just as all of the other components of litigation. The appraisal is
not the place to cut corners. You may want to use someone that has been an
expert witness in the past. You may want to use someone that gets excellent
results in court. Do not forget to discuss this very important fact.
All of these pricing guidelines are predicated on the availability of good bookkeeping
and accounting records. Generally, the appraiser cannot commence the engagement
until there are good financial statements (income statements and balance sheets)
available. These need not be uncontested, of course, but where the income of the
entity or the values of the assets are in question, the appraiser must be given
an instruction as to what assumptions to use in his appraisal.



Lance Wallach, National Society of Accountants Speaker of the Year and
member of the AICPA faculty of teaching professionals, is a frequent speaker on
retirement plans, financial and estate planning, and abusive tax shelters. He
writes about 412(i), 419, and captive insurance plans. He speaks at more than
ten conventions annually, writes for over fifty publications, is quoted
regularly in the press and has been featured on television and radio financial
talk shows including NBC, National Public Radio's All Things Considered, and
others. Lance has written numerous books including Protecting Clients from
Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education's
CPA's Guide to Life Insurance and Federal Estate and Gift Taxation, as well as
AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and
Common Abusive Small Business Hot Spots. He does expert witness testimony and
has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com
or visit www.taxaudit419.com/ and www.taxlibrary.us