Valuing small businesses and professional practices
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1993
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| 245 | 1 | 0 | |a Valuing small businesses and professional practices |c Shannon P. Pratt |
| 250 | |a 2. ed. | ||
| 264 | 1 | |a Chicago [u.a.] |b Irwin |c 1993 | |
| 300 | |a XXIV, 692 S. | ||
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| adam_text | Contents
PART I Introduction: Understanding the
Valuation Process 1
1. Business Valuation Standards 3
Introduction. The Appraisal Foundation. Background. Con¬
tent of Uniform Standards of Professional Appraisal Practice
(USPAP). Developments and Status. American Society of Ap¬
praisers. Background Business Valuation Standards.
Other Professional and Regulatory Bodies. Canadian Institute
of Chartered Business Valuators (CICB V). Institute of Business
Appraisers. The ESOP Association. Internal Revenue Service
(IRS). Department of Labor. Summary. Bibliography.
2. Defining the Valuation Assignment 11
First Things First. Basic Elements of the Valuation Assignment.
Property to Be Valued. Valuation of the Stock of a Business.
Valuation of the Assets of a Business. Treatment of Covenants
Not to Compete and Employment Agreements. The Purpose or
Purposes of the Valuation. Appraisal Date. Choosing an Ap¬
plicable Appraisal Date. Appraisal Dates Determined by Law.
Applicable Standard of Value. Instructions to the Independent
Professional Appraiser. Form and Extent of the Appraisal Re¬
port. Schedule. Fee Arrangements. Summary.
3. Defining Value 23
Standards of Value. Fair Market Value. Investment Value.
Intrinsic or Fundamental Value. Fair Value. Premises of Value.
Going Concern Value. Liquidation Value. Control versus Minor¬
ity. Degree of Marketability. The Business Interest Being Val¬
ued. Equity versus Invested Capital What Assets A re Included
Book Value. Sources of Guidance as to Applicable Standards
and Premises of Value. Effect of Terms on Value. Summary.
4. How Valuations Differ for Different Purposes 37
Buying or Selling a Business or Practice. Buying or Selling a
Partial Interest. Obtaining or Providing Financing. Going
Public. Leveraged Buyouts. Employee Stock Ownership
xiii
xiv Contents
Plans. Estate, Gift, Inheritance, and Income Taxes. Ad Val¬
orem Taxes (Property Taxes). Charitable Contributions. Buy
Sell Agreements. Property Settlements in Divorces. Damage
Cases. Mergers. Determining Life Insurance Needs.
Squeeze Out Mergers and Dissenting Stockholder Actions. Mi¬
nority Stockholder Oppressing Actions. Valuations for Multiple
Purposes. Considering Alternatives: Estate Planning and
Other Types of Choices. Summary.
5. Differences between the Valuation of Large and
Small Businesses 47
Status of Financial Statements. Audited Statements. Re¬
viewed Statements. Compiled Statements. Tax Returns Only.
Responsibility for Forensic Accounting. Records in a Shoe Box.
Cash versus Accrual Accounting. Length of Track Record
Available. Form of Business Ownership. Stock versus Asset
Transaction. Consideration Offered by Purchaser. Compara¬
tive Transaction Data Available. Role of the Owner/Manager.
Motivation of the Buyer. Compensation to Owners. Account¬
ing Policies for Financial Reporting. Earnings Analysis on Pre¬
tax or After Tax Basis. Complexity of Capital Structure.
Classes of Corporate Stock. Treasury Stock. Limited Partner¬
ships. General Partnerships. Summary.
6. Comparison between Business Appraisal Practices
and Real Estate Appraisal Practices 61
Nature of Property Being Appraised. Relative Development of the
Disciplines. Language Similarities and Differences. Differences
in Appraisal Approaches. Real Estate Appraisal Approaches.
Business Appraisal Approaches. Differences in Capitalization
Rates. Availability of Comparative Sales Data. Summary.
PART II Analyzing the Company 69
7. Adjusting the Balance Sheet 71
Accounts Receivable. Inventory. FIFO versus LIFO. Write
Down and Write Off Policies. Tax Effect. Prepaid Expenses.
Other Current Assets. Real Estate. The Real Estate Appraisal
Process. Approximations of Real Estate Values. Tax Effect.
Tangible Personal Property. Used Replacement Cost. Depreci¬
ated Replacement Cost. Liquidation Value. Intangible Assets.
Liabilities. Interest Bearing Debt. Deferred Taxes. Contin¬
gent or Off Balance Sheet Assets and Liabilities. Product Lia¬
bility. Lawsuits. Regulatory Compliance. Past Service Lia¬
bility. Employment Agreements. Unrecorded Obligations.
Liens. Examples of Adjusted Balance Sheets. Sole Proprietor¬
ship Example. Corporation Example. Summary.
Contents XV
8. Adjusting the Income Statement 91
Compensation to Owners. Analyzing the Components of Com¬
pensation. Sources of Comparative Compensation Data.
Depreciation. Cost of Goods Sold. Adjustment for Companies
Using UFO Accounting. Unconventional but Not Uncommon
Practices. Occupancy Costs. Rented or Leased Premises.
Owner Occupied Premises. Nonrecurring Items. Business In¬
terruptions. Insurance Proceeds. Lawsuit Settlements. Gains
or Losses on Disposal of Assets. Discontinued Operations. Pay¬
ments on Employment Contracts and Covenants Not to Compete.
Abnormal Market Conditions. Unrecognized Costs. Accrued
Expenses. Bad Debts. Insurable Liabilites. Imminent Chang¬
es. Nonoperating Income and Expenses. Adjusting for Taxes,
if Necessary. Examples of Adjusted Income Statements. Sole
Proprietorship Example. Corporation Example. Summary.
9. Comparisons with Industry Averages 107
Advantages of Comparative Analysis. Identifying Errors.
Identifying Strengths and Weaknesses. Identifying Opportuni¬
ties. Sources of Comparative Industry Data. General Sources.
Specialized Sources. Interpretation of Financial Statement
Ratios. Short Term Liquidity Measures. Balance Sheet Lever¬
age Ratios. Activity Ratios. Profitability Ratios. Examples of
Comparative Industry Analysis. Sole Proprietorship Example.
Corporation Example. Summary.
10. Analyzing Qualitative Factors 121
Relevant Economic Data. National Economic Data. Regional
and Local Economic Data. Industry Factors. Markets. Chan¬
nel of Distribution. Technology. Sources of Industry Informa¬
tion. Competition. Existing Competition. Potential Competi¬
tion. Regulation. Present Regulations. Potential Changes in
Regulatory Environment. Product or Service Lines. Existing
Lines. Opportunities for Related Lines. Patents, Copyrights,
Trademarks. Relative Profitability of Lines. Service or War¬
ranty Obligations. Supplier Relationships. Continuity. Degree
of Exclusivity. Contractual Relationships. Market Position.
Reputation. Geographic Scope. Method of Marketing and Dis¬
tribution. Pricing Policies. Customer Base. Customer Rela¬
tionships. Market Continuity, Growth Opportunities, and Weak¬
nesses. Management and Employees. Size and Composition of
Work Force. Key Employees. Other Employees. Compensation.
Personnel Policies, Satisfaction, Conflict, and Turnover. Ade¬
quacy of Physical Facility. Condition. Heat, Light, Plumbing,
and Other Systems. Size. Continuity of Occupancy. Op¬
erating Efficiencies and Inefficiencies. Physical Plant. Ac¬
counting and Other Controls. Reason for Sale. Summary.
xvi Contents
11. The Buyer s Perspective—Pro Forma Statements 143
Analysis of Working Capital Requirements. Steps in A nalyzing
Working Capital. An Example of Working Capital Analysis.
Analysis of Fixed Assets. Deferred Maintenance and Replace¬
ment Requirements. Compliance Requirements. Other Asset
Inadequacies. Excess Assets. Contingent Liabilities. Struc¬
ture of Long Term Liabilities. The Buyer s Income Statement.
Changes in Existing Operations. New Business Directions.
Synergies and Efficiencies. Samples of Buyer s Pro Forma
Statements. Purchase of a Sole Proprietorship. Purchase of
Corporate Stock. Summary.
PART III Reaching the Value Conclusion 157
12. Understanding Discount and Capitalization Rates 159
Introduction. Discounting versus Capitalizing. Discount¬
ing. Capitalizing. Components of a Discount Rate. Risk
Free Rate of Return. Premium for Risk. Premium for Illiquid
ity. Premium for Administrative Costs. Relationship between
Discount Rates and Capitalization Rates. Reflecting Growth or
Decline in Expected Returns. Return on Investment versus Re¬
turn on and of Investment. Distinguishing between Return on
Equity (ROE) and Return on Invested Capital (ROD. Return on
Equity. Return on Invested Capital. Implication for Discount
and Capitalization Rates. Relating Discount or Capitalization
Rate to Income Stream. Developing a Discount Rate. Discount
Rates for Debt. Discount Rate for Net Free Cash Flow to Equity.
Weighted Average Cost of Capital (WACC). Discount Rate for
Other Return Variables. Developing a Capitalization Rate.
Direct Market Comparison Method Converting a Discount Rate
to a Capitalization Rate. Warning! Historical Industry Returns
Not Reliable for Discount and CAP Rates. Relationship between
Payback Period and Capitalization Rate. Different Rates for
Different Buyers. Summary. Bibliography.
13. The Discounted Future Returns (DFR) Method 187
Pros and Cons of the Discounted Future Returns Methods. The
Discounted Future Returns Formula. Quantifying the Variables.
Projecting the Future Returns. Selecting the Discount Rate.
An Example. Summary. Bibliography.
14. Basic Capitalized Earnings Methods 197
Deciding on the Earnings Base to Be Capitalized. How the Pur¬
pose Affects the Selection of the Earnings Base. A vailability of
Reliable and Valid Earnings Data. A bility to Develop an Appli¬
cable Capitalization Rate. Capitalizing Earnings Available to
Contents xvii
Equity. Defining the Earnings Base. Capitalization Rate by
the Build Up (Summation) Method. Capitalization Rate by Di¬
rect Market Comparison Method. Applying the Rate to Deter¬
mine the Value. Capitalizing Earnings Available to Overall
Investment ( Invested Capital ) Defining the Earnings Base.
Capitalization Rate by the Weighted Average Method. Applying
the Rate to Determine the Value. How Expected Growth Affects
Capitalization Rates. Adjusting for Excess Assets or Capital
Deficiency. Examples of Valuations by the Capitalized Earning
Approach. Sole Proprietorship Example. Corporation Example.
15. The Excess Earnings Method 211
History of the Excess Earnings Method. How It Works. A
Step by Step Explanation. Ah. . . Sweet Simplicity! An Exam¬
ple. A Popular Version. Denunciation by the IRS. Analysis
of the Method. Determining Net Tangible Asset Value. Deter¬
mining a Normalized Level of Earnings. Appropriate Rate of
Return on Tangible Assets. Appropriate Capitalization Rate for
Excess Earnings. Summary: Conceptual Basis for the Two Capi¬
talization Rates. Negative Goodwill. Common Errors in
Applying the Excess Earnings Method. Failure to A llow for
Owner s Salary. Failure to Use Realistic Normalized Earnings.
Using Book Values of Assets without Adjustment. Errors in
Choosing Appropriate Rates. Summary. Selected Bibliography.
16. Gross Revenue Multipliers 229
The Basic Concept. When Gross Revenue Multipliers May Be
Useful. When Gross Sales Are the Only Reliable Income Data
Available. For Companies with Losses or Erratic Earnings.
For Highly Homogeneous Industries and Professions. Estimat¬
ing Value of Intangible and/or Other Assets. Where There Is a
High Industry Correlation between Price and Return on Sales.
Gross Revenue Multipliers Generally Indicate Debt Free Value.
Problems in Using Gross Revenue Multipliers. Ambiguity as to
Exactly What Was Sold. Abiguity as to Terms of Sale. A Profit
Factor Usually Comes into Play. Differences in Persistence of
Revenues. Uniqueness of Each Entity. Multipliers Change
Considerably over Time. Even Gross Revenue Data May Not Be
Reliable. Multiples of Some Measure of Physical Volume. Us¬
ing Industry Earnings Data to Check Gross Revenue Multipliers.
Summary.
17. Asset Based Methods 239
Fundamentals of Asset Based Methods. Asset Based Methods
versus Book Value. Various Asset Based Methods. The Asset
Accumulation Method. Collective Revaluation of Assets and Lia
xviii Contents
bilities. Discrete (Separate) Revaluation of Assets and Liabilities.
Partial Revaluation of Individual Assets and Liabilities. Steps
in Application of the Asset Accumulation Method. Obtain or De¬
velop GAAP Basis Balance Sheet. Identify Assets and Liabilities
to Be Revalued. Identify Off Balance Sheet Assets that Should
Be Recognized. Identify Off Balance Sheet and Contingent Lia¬
bilities that Should Be Recognized. Value the Items Identified
Above. Construct a Valuation Basis Balance Sheet. Premises
of Value for Individual Assets. Value in Continued Use, as Part
of a Going Concern. Value in Place, as Part of a Mass Assem¬
blage of Assets. Value in Exchange, in an Orderly Disposition.
Value in Exchange, in a Forced Liquidation. Selecting a
Premise of Value. Individual Asset Valuation Approaches and
Methods. Financial Assets. Tangible Real Property. Tangi¬
ble Personal Property. Intangible Real Property. Intangible
Personal Property. Illustrative Example. A vantages of the
Asset Accumulation Method. Disadvantages of the Asset Accu¬
mulation Method. Summary. Selected Bibliography.
18. Valuation Synthesis and Conclusion 273
Criteria for the Selection of Valuation Approaches. Quantity and
Quality of Available Data. Access to Available Data. Supply of
Industry Transaction Data. Type of Business, Nature of Busi¬
ness Assets, and Type of Industry Subject to Appraisal. Business
Interest Subject to Appraisal. Statutory, Judicial, and Adminis¬
trative Considerations. Informational Needs of Appraisal A udi
ence. Purpose and Objective of Appraisal. Professional Judg¬
ment and Expertise of Appraiser. Criteria for the Weighting of
Valuation Method Results. Discounted Future Returns. Capi¬
talization of Earnings. Excess Earnings Method. Guideline
(Comparative) Company Methods. Gross Revenue Multipliers.
Asset Based Methods. An Inconsistency of Results among Valu¬
ation Approaches and Methods. Summary.
19. Tradeoff between Cash and Terms 283
Converting a Price on Terms to an Equivalent Cash Value. A
Typical Example. Some Variations. Determining the Applica¬
ble Market Interest Rate. Data on Market Interest Rates. Us¬
ing an Ounce of Judgment. Converting a Cash Value to a Price
on Terms. Contingent Payments. Summary.
20. Making a Sanity Check: Is It Affordable? 295
Cash Available for Debt Service. Amount of Coverage Needed.
Possible Adjustments to the Contract. Protective Covenants.
An Example. Summary.
Contents xix
21. Common Errors 301
Failure to Clearly Identify and/or Adhere to the Applicable Stan¬
dard of Value. Rigid Categorization of Business Valuation
Methods. Reliance on Real Estate Appraisal Methods. Reli¬
ance on Rules of Thumb. The Assets Plus .. . Method. Indis¬
criminate Use of Price/Earnings Multiplies. Failure to Identify
What One Gets for the Price. Applying PIE Multiples to Earn¬
ings that Are Not Comparable. Applying PIE Multiples When
Time Periods Are Not Comparable. Using the Reciprocal of the
PIE Multiple as the Required Rate of Return. Failure to Make
Appropriate Adjustments. Other Errors in Deriving Capitaliza¬
tion Rates. Using Rates from an Earlier Time Period.
Applying Rates on Safe Investments to Small Business Invest¬
ments. Failure to Match the Capitalization Rate with the Earn¬
ings Base. Mistaking Historical Results for Required Rates of
Return. Failure to Estimate a Realistic Normalized Earnings
Base. Reliance on Past Results without Judgment. Failure to
Recognize A ny Depreciation. Not A llowing Compensation to
Owner/Operator. Failure to Consider the Full Cost of the Pur¬
chase. Working Capital Requirements. Deferred Maintenance.
Other Investment Needed. Assuming that the Buyer Will Pay
for the Now and the Hereafter. Emphasis of Items Not in Pro¬
portion to Their Relative Importance. Inadequate Documenta¬
tion. Summary.
22. A Sample Case: JIT Insurance Company 317
Background of JIT Insurance Company. Economic Data. Man¬
ufacturing. Population. Tourism. Outlook. Operations.
Competition. Suppliers. Management and Employees. Cus¬
tomers and Marketing. Facilities. Financial Statements.
Related Financial Data.
23. Suggested Solution to the Sample Case 329
Adjusting the Balance Sheet. Adjusting the Income Statement.
Discretionary Bonus. Removal of Nonrecurring Items. Analysis
of Adjusted Financial Statements. Balance Sheets. Income
Statements. Comparison with Industry Averages. Summary of
Positive and Negative Factors. Positive Factors. Negative Fac¬
tors. Deriving Capitalization Rates from Transaction Data.
Adjusting Transaction Data to Cash Equivalent Value. Price/
Earnings before Taxes (EBT). Price/Earnings before Deprecia¬
tion and Taxes (EBDT). Price Earnings before Interest and
Taxes (EBIT). Price Earnings before Depreciation, Interest, and
Taxes (EBDIT). Price Revenue. Price/Book Value. Capitali
zaiton of Normalized Earnings. PricelEBT. Price/EBDT.
PricelEBIT. PricelEBDIT. Summary. Excess Earnings
Method. Discounted Future Returns Method. Gross Revenue
XX Contents
Multiplier. Price/Book Value Method. Valuation Summary.
Valuation Conclusion.
PART IV Valuations for Specific Purposes 343
24. S Corporations 345
What Is an S Corporation? Why Corporations Elect S Status.
The Pros and Cons of S Status. Valuation Issues. Business En¬
terprise Value. Valuation of Minority Interests. Determination
of Appropriate Distribution Rate. Discounted Future Returns
Method. Other Valuation Issues. Lack of Marketability. Con¬
verting from C Corporation to S Corporation Status. Summary.
Bibliography.
25. Employee Stock Ownership Plans (ESOPs) 357
What Is an ESOP? Leveraged ESOPs. The Leveraged B uyout.
The ESOP as a Vehicle for Financing. Advantages of ESOPs.
Tax Free Rollover on Sale of Stock to ESOP. Tax Deductible Div¬
idends. Half of Interest Income Is Tax Free to Lenders. Estate
Tax Liability. Improve Employee Morale and Productivity.
Achieve Other Corporate Objectives. Does an ESOP Make Sense
for Your Company? Value of the Company. Corporate Form.
Adequacy of Payroll. Cash Flow. Owner s Departure. Corpo¬
rate Culture. Rules for Valuation of ESOP Shares. Govern¬
ment Regulation. When an Appraisal Is Required. Qualified
and Independent Appraiser. ESOP Valuation Problems. Sum¬
mary. Bibliography.
26. Estate Planning and Buy Sell Agreements 369
Buy Sell Agreements. Types of Agreements. Provisions for
Valuation. Gift and Estate Taxes. Transfer Tax Rates and Ex¬
emptions. Penalties for Undervaluation. Rules for Valuation.
Methods Used to Minimize Gift and Estate Taxes. Appraisals for
Charitable Contributions. Summary. Bibliography.
PART V Valuing Professional Practices 385
27. Introduction to Professional Practice Valuation 387
Reasons to Value a Professional Practice. Characteristics of a Pro¬
fessional Practice. Service Business Characteristics. Client Trust
and Respect. Dependence on Referral Sources. Education, Li¬
censing and Certification. Distinctions between Professional Prac¬
tice and Other Business Valuations. Type of Assets. Dependence
on Professional Licenses. Cash Basis Accounting. Limited
Life. Value Drivers for Professional Practices. Summary.
Contents xxi
28. Adjusting the Professional Practice Balance
Sheet 395
Assets. Cash. Accounts Receivable. Work in Process Inven¬
tory. Inventory of Supplies. Prepaid Expenses. Equipment.
Leasehold Improvements. Intangible Assets. Liabilities. Ac¬
counts Payable. Accrued Liabilities. Deferred Liabilities.
Long Term Debt. Lease Obligations. Contingent Liabilities.
Summary.
29. Elements that Create Professional and Practice
Goodwill 409
Distinction between Practice Goodwill and Professional Good¬
will. Practice Goodwill. Professional Goodwill. Buying and
Selling a Practice—Elements of Goodwill. Expected Future
Earnings. Level of Competition. Referral Base. Types of Pa¬
tients and Clients. Work Habits of the Practitioner. Fee Sched¬
ules. Practice Location. Employees of the Practice. Market¬
ability of the Practice. Divorce Valuation—Elements of
Goodwill. Practitioner s Age and Health. Demonstrated Past
Earning Power. Reputation for Judgment, Skill, and Knowl¬
edge. Comparative Professional Success. Nature and Duration
of Practice. Summary.
30. Determining the Value of the Practice 421
Methods of Professional Practice Valuation. Discounted Cash
Flow. Capitalization of Earnings. Multiple of Revenues. Ex¬
cess Earnings. Asset Accumulation. Depreciating Goodwill.
Comparative Transactions and Buy Ins (Market Data Compari¬
son). Punitive and Retirement Formulas. Rule of Thumb
Methods for Various Types of Practices. Accounting Practices.
Dental Practices. Engineering/Architecture Practices. Law
Practices. Medical Practices. Optometric Practices. Medical
Laboratories. Veterinary Practices. Summary. Selected
Bibliography.
31. Sample Professional Practice Valuation Report 441
Introduction. Description of the Assignment. Summary Descrip¬
tion of the Practice. Sources of Information. Summary and Con¬
clusion. Sacramento Economic Profile. Overview. Health Care.
Survey of the Medical Practice Field. Competition. Changes in
Practice Services. Prepaid Health Care. Personal Background.
Practice History. Financial Statement Analysis. Balance Sheet
Income Statements. Valuation of a Medical Practice and Pro¬
fessional Goodwill. Medical Practice. Professional Goodwill
Prior Transactions. Valuation Conclusion,
xxii Contents
32. Illustrative Examples of Professional Practice
Valuation Methods 463
Illustrative Example of a Medical Practice Valuation. Three
Practice Valuation Approaches. Illustrative Example Fact Set.
Discounted Net Cash Flow Method. Market Data Comparable
Method. Asset Accumulation Method. Fair Market Value of
the Medical Practice. Summary and Conclusion. Illustrative
Example of an Accounting Practice Valuation. Applying the
Asset Accumulation Approach. Caveats Regarding Practice Val¬
uations. Summary and Conclusion.
PART VI Topics Related to Valuation 487
33. Transaction Data Bases 489
The IBA Market Data Base. Description of the IBA Data Base.
Limitations of the IBA Data Base. How Does Business Value
Vary with Time? How Is Price Affected by Terms? Bizcomps.
Geneva Business Sale Data Base. The UBI Business Sale Data
Base. Description of the UBI Data Base. Results of the UBI
Data Base by Industry Category. Professional Practice Valuation
Study Group. Carroll/Cahill Associates Data Base. VK Busi¬
ness Brokers. IBBA Merger and Acquisition Data. Summary.
34. Valuing Intangible Assets 507
Introduction. Fundamentals of the Appraisal. Categorization
of Intangible Assets. Listing of Intangible Assets. Valuation
of Intangible Assets. Market Approach. Income Approach.
Cost Approach. Replacement Cost New. Curable versus Incur¬
able Obsolescence. Reproduction Cost. Replacement Cost.
Remaining Useful Life Analysis of Intangible Assets. Summary.
Selected Bibliography.
35. Valuing Minority Interests 525
Elements of Control. Degree of Control. Effect of State Stat¬
utes. Effect of Articles of Incorporation and Bylaws. Effect of
Distribution of Ownership. Distinction between Discount for
Minority Interest and Discount for Lack of Marketability. How
the Applicable Standard of Value Affects Minority Interests.
Fair Market Value. Investment Value. Intrinsic Value. Fair
Value. Approaches to Valuation of Minority Interests. Propor¬
tion of the Enterprise Value less a Discount. Valuation by Com¬
parison with Other Minority Interests. Bottom Up Approach.
Errors to Avoid. The Public Offering Myth. Irrelevant Finan¬
cial Statement A djustments. Comparison with Real Estate Mi¬
nority Discounts. Data on Sales of Minority Interests. Trust
and Estate Sales. Public Stock Market Data. A Few Personal
Contents xxiii
Experiences. Split Up of the Brothers in Law. The Lost Sheep
Out in the Cold. When the Controlling Interest Is Sold. When
the Buy Sell Agreement Is Triggered. Summary. Selected
Bibliography.
36. Buying or Selling a Business or Practice 541
To Sell or Not to Sell. Reasons to Sell. Factors Affecting Price.
Timing of the Sell Decision. Preparing the Business for Sale.
Have Excellent Records. Clean Up the Balance Sheet. Have a
Good Profit Record. Have the Business in Good General Condi¬
tion. Have Adequate Personnel. Do a Valuation Analysis.
Deciding What to Buy. Preparing to Make an Offer. Differing
Perceptions and Circumstances of Sellers and Buyers. Assess¬
ment of Future Profits and Risk. Opportunity. Personal Re¬
wards. Synergism. Compulsion. Working with a Business
Broker. Services Offered by Business Brokers. Should You Use
a Business Broker or Not? Criteria for Selecting a Broker. Lo¬
cating the Broker. Pricing and Listing a Business or Practice for
Sale. Typical Fees. Working with the Broker. Closing the
Deal. Structuring a Deal. Stock versus Asset Sale. Selling on
an Installment Contract Selling for Stock of the Buying Company.
Leveraged Buyouts. Earn Outs. Contingencies. Covenants
Not to Compete. Employment Contracts. Allocating the Pur¬
chase Price. Summary. Bibliography.
37. Working with a Business Appraiser 573
Services Typically Offered by Business Appraisers. Finding and
Engaging an Appraiser. Selecting the Appraiser. Fees and
Scheduling. Professional Services Agreement. Contingent and
Limiting Conditions. Information to Provide the Appraiser.
Financial Statements. Other Financial Data. Company Docu¬
ments. Other Information. Field Visit. Preparation. Mis¬
sion. Confidentiality. Adversary Proceedings. The Appraisal
Report. Independence of Appraiser. Summary.
PART VII Litigation and Dispute Resolution 585
38. Litigation 587
The Legal Context. Statutes. Regulations and Administrative
Rulings. Case Law. Court Directives and Preferences. Corpo¬
rate and Partnership Dissolutions. Dissenting Stockholder Ac¬
tions. Reasons for Squeeze Out Mergers. Dissenting Stock¬
holder Appraisal Rights. Standard of Value. Estate, Gift, and
Income Taxes. Bankruptcy/Insolvency/Reorganization Situa¬
tions. State and Local Property Taxes. Intellectual Property
Right Infringements. Summary.
xxiv Contents
39. Divorce 597
Divorce Valuation Survey. Divorce and Litigation. Date of
Valuation. Standard of Value. Discovery. Methods of Valua¬
tion. Valuation Discounts. Summary. Bibliography.
40. Damages 609
The Fact of Damages versus the Amount of Damages. Estab¬
lishing the Fact of Damages. Proximate Cause. Reasonable
Certainty. Foreseeability. Calculating the Amount of Damages.
The Before and After Approach. The Yardstick (Comparable)
Approach. Sales Projections ( But For ) Approach. Some
Comments on Projections. Prejudgment Interest and Dis¬
counting Anticipated Returns. Common Damage Cases.
Breach of Contract. Condemnation. Lost Business Opportu¬
nity. Antitrust Actions. Personal Injury. Insurance Casualty
Claims. Mitigation. Summary. Selected Bibliography.
41. Arbitrating Disputed Valuations 623
Advantages of Arbitration versus Court Trial. Independent
Role of Arbitrators. Situations Giving Rise to Arbitration. Di¬
vorces. Corporate and Partnership Dissolutions. Dissenting
Stockholder Actions. Damage Cases. Selection of Arbitrators.
Criteria for Selection. Procedure for Selection. American Arbi¬
tration Association Procedure. Engagement and Compensation
of Arbitrators. Establishing the Ground Rules for Arbitration.
Factors Specified in the Arbitration Agreement. Factors Left to
the Arbitrators Discretion. The Arbitration Process. Review of
Arbitration Document. Initial Communication among Arbitra¬
tors. Field Visit. Hearings. The Valuation Meeting. Re¬
porting the Results of the Arbitration. Summary: The Most
Critical Elements. Selected Bibliography.
Appendix A American Society of Appraisers
Business Valuation Standards 635
Appendix B Revenue Ruling 59 60 657
Appendix C Present Value Tables 663
Appendix D Bibliography 671
Index 687
|
| any_adam_object | 1 |
| author | Pratt, Shannon P. 1933-2021 |
| author_GND | (DE-588)142483109 |
| author_facet | Pratt, Shannon P. 1933-2021 |
| author_role | aut |
| author_sort | Pratt, Shannon P. 1933-2021 |
| author_variant | s p p sp spp |
| building | Verbundindex |
| bvnumber | BV009983251 |
| classification_rvk | QP 770 |
| ctrlnum | (OCoLC)632721279 (DE-599)BVBBV009983251 |
| discipline | Wirtschaftswissenschaften |
| edition | 2. ed. |
| format | Book |
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| id | DE-604.BV009983251 |
| illustrated | Not Illustrated |
| indexdate | 2025-02-03T16:34:53Z |
| institution | BVB |
| isbn | 1556235518 |
| language | English |
| oai_aleph_id | oai:aleph.bib-bvb.de:BVB01-006615798 |
| oclc_num | 632721279 |
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| owner | DE-19 DE-BY-UBM DE-703 DE-523 |
| owner_facet | DE-19 DE-BY-UBM DE-703 DE-523 |
| physical | XXIV, 692 S. |
| publishDate | 1993 |
| publishDateSearch | 1993 |
| publishDateSort | 1993 |
| publisher | Irwin |
| record_format | marc |
| spellingShingle | Pratt, Shannon P. 1933-2021 Valuing small businesses and professional practices Unternehmensbewertung (DE-588)4078594-4 gnd Klein- und Mittelbetrieb (DE-588)4031031-0 gnd |
| subject_GND | (DE-588)4078594-4 (DE-588)4031031-0 |
| title | Valuing small businesses and professional practices |
| title_auth | Valuing small businesses and professional practices |
| title_exact_search | Valuing small businesses and professional practices |
| title_full | Valuing small businesses and professional practices Shannon P. Pratt |
| title_fullStr | Valuing small businesses and professional practices Shannon P. Pratt |
| title_full_unstemmed | Valuing small businesses and professional practices Shannon P. Pratt |
| title_short | Valuing small businesses and professional practices |
| title_sort | valuing small businesses and professional practices |
| topic | Unternehmensbewertung (DE-588)4078594-4 gnd Klein- und Mittelbetrieb (DE-588)4031031-0 gnd |
| topic_facet | Unternehmensbewertung Klein- und Mittelbetrieb |
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