>>>To establish a value
for an entire or partial interest in a closely held business or
professional practice, the valuator must take into account both
quantitative and qualitative tangible and intangible factors associated
with the specific business being valued.
>>>The value of an interest
in a closely held business is typically considered equal to the
future benefits that will be received from the business, discounted
to the present at an appropriate discount rate.
There are many subsets of value: fair market value, book value,
replacement value, liquidation value, going concern value, loan
value, insurable value, appraised value, to name a few.
>>>The most widely recognized
and accepted standard of value in the United States is fair market
value. It is the standard used in all Federal tax matters. It
is defined in Revenue Ruling 59-60 as:
The price at which the property would change hands between a willing
buyer and willing seller when the former is not under any compulsion
to buy and the seller is not under any compulsion to sell, both
parties having reasonable knowledge of relevant facts.
>>>It is important to remember
that the “willing buyer and willing seller” are hypothetical,
not specific. The practice of business valuation has been evolving
from that of an art to become more scientific. It is probable
that no two valuators will come up with the same number. However,
given the state of practice today and court case precedents, the
numbers should be close.
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Top
Reasons why a business may be valued
- Estate tax
- Divorce
- Mergers and acquisitions
- Buy out of existing
shareholders
- Selling interests to
new shareholders
- Determining the proper
amount of buy/sell life insurance
- An event that triggers
a buy/sell agreement
- Retirement of a shareholder
- Capital infusions
- Employee Stock Ownership
Plans
- Gift taxes
- Litigation
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>In performing a valuation,
O’Dell Valuation Consulting LLC will meet with the business
owners to determine the reason for the valuation and to obtain an
understanding of the business. A tour of the facilities is required
to observe the condition of equipment and to speak with employees.
The starting point for the valuation is an analysis of the last
five years of financial statements. If available, projections for
the next several years are helpful. The business results are compared
to industry data, current national and local economic data is studied
and a search is made for sales of comparable companies using national
data bases.
Several different valuation formulas are computed
and evaluated for appropriateness. Using all this information, we
give an opinion of value and write a comprehensive report, which
must adhere to professional standards.
>>>We bill our
valuation engagements on a fixed fee basis. . Fees are set in advance
along with a payment schedule. A contract is drawn up outlining
the scope of the project. Any changes, additions or contractions
to the scope of work are handled in a change order to the original
contract.
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