Business Valuations

CPA services provided by Contryman Associates, P.C., Investment Adviser services are offered through Contryman Wealth Advisors

Description:
A business valuation is the appraisal of a business to accurately determine its value or the worth of an interest in a privately held company for purposes of buying or selling the business, for determining a price for a buy/sell agreement, and for strategic business planning. The document may also be entered into evidence in a court of law and used in litigation and divorce proceedings. Additionally, a business valuation may be used in determining estate and gift taxes and for estate, retirement, or succession planning. Companies may also use a business valuation when establishing an Employee Stock Option Plan.

Benefits:
You can be confident in the value that is determined in a business valuation prepared by a Contryman Certified Valuation Analyst (a certification of the National Association of Certified Valuation Analysts). The in-depth research that they complete includes multiple methods of determining the value of a business and information regarding comparable companies across the country. In addition to satisfying the IRS and Department of Labor, the valuation and method used can be presented as evidence in a court of law.

The report that is generated can be a valuable tool in negotiating the purchase or selling price of a business so you don’t pay too much or receive too little. When purchasing a business, a business valuation will help you understand all financial aspects of the business before you buy. Additionally, the information in the report can be used in the development of a strategic business plan so that your plan is the result of research rather than relying on luck or intuition.

The information in a business valuation may be used to equitably distribute the assets of an estate, saving disagreements among your heirs. It may also result in estate and gift tax reductions if a lower value is determined.

Process:

  • A Contryman Certified Valuation Analyst meets with business owner(s) and/or attorney(s) to determine the purpose of the valuation.
  • On-site visit is conducted.
  • The businesses’s management personnel are interviewed.
  • Our valuation analysts research the company being valued and the industry in which they operate.
  • Three different approaches are used in a valuation to determine the business value: Earnings Approach (earnings x a multiplier), Net Assets Approach (fair market value of assets less liabilities), and Comparable Sales Approach (market approach).
  • We create the valuation report, including the methodology used in determining value.
  • We will testify, if necessary, in court proceedings or meet with business owner(s) to determine next course of action (estate plan, retirement plan, succession plan or other).

Case Examples:
Case 1: The sole shareholder of an architectural corporation, age 57, used a Contryman business valuation to determine the value of the stock options that he annually gave his key employees. The stock options gave the employees the right to purchase the stock at the corporate value when the option was granted. He structured his plan so that the total amount of the options or stock would be 50% of his company upon his retirement at age 65. This assured him a market for his stock and provided needed cash flow to the corporation for the eight years preceding his retirement.

Case 2: A business valuation revealed significant differences between the value of a business and the contract terms of a buy/sell agreement between the parents and children of a family owned business. By restructuring the agreement we were able to reduce the sale price to fair market value making it more equitable to the children who planned to remain in the business. Through financing and payments the parents were able to maintain the needed level of cash flow, and family squabbles that may have occurred after the parents’ deaths were avoided.

Case 3: A valuation report by a Contryman Associates Certified Valuation Analyst was a key piece in winning an appeal in a divorce case involving the owners of a manufacturing firm. The husband’s expert testified that the fair market value of the business was $505,283. Our analyst’s valuation put the value of the company at more than $2 million.

The Contryman valuation analyst’s report was based on financial figures that were a year more recent than those of the husband’s expert. He included a specific sum of earnings for litigation in a patent infringement suit that the company won before the divorce case went to trial. The appellate court in the divorce proceedings concluded that the valuation report from the husband’s expert was stale and that in the intervening time, significant events occurred.

This case study may not be representative of the experience of, or the results realized, by other clients. There is no guarantee of future performance or success.

 


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