15 Dec 2024
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Donating Private Stock? Be Sure to Get a Business Valuation

Roger Rossmeisl, CPA
Valuation Briefs
Donating Private Stock? Be Sure to Get a Business Valuation

While many people donate cash or volunteer for their favorite causes, charities also welcome donations of company stock. Stock donations can offer a tax bonus to donors if the shares have appreciated. However, obtaining a business valuation from a “qualified appraiser” is critical to reap the tax benefits from a donation of private stock. Tax benefits If you’re feeling generous this year, you’re not alone. Total charitable giving in the United States is expected to increase by 4.2% in 2024, according to “The Philanthropy Outlook 2024–2025” by the Indiana University Lilly Family School of Philanthropy. This projected growth rate significantly outpaces the annualized average of 1.9% over the past 10 years. Tax breaks may be available for charitable contributions. But only donors who itemize deductions on their 2024...

15 Dec 2024
0

From Risk to Reward: Valuing Emerging-Market Companies

Roger Rossmeisl, CPA
Valuation Briefs
From Risk to Reward: Valuing Emerging-Market Companies

In today’s global economy, an established business might consider expanding its revenue base by acquiring or merging with a company in an emerging market. These markets — for example, in Brazil, China, India, Mexico, South Africa and Turkey — provide tremendous growth potential. But they also come with significant risks. So, obtaining reliable business valuations is an essential part of due diligence in emerging-market M&As. Capturing opportunities and risks A nuanced valuation approach is required for companies in emerging markets, which generally are countries experiencing rapid economic growth and increasing industrialization. These companies face challenges related to market inefficiencies and operational risks that typically aren’t present in countries with more advanced economies. Other differences can also significantly affect the value of an emerging-market company. Specifically, valuation pros...

20 Oct 2024
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Can Marketability Discounts Apply When Valuing Controlling Business Interests?

Roger Rossmeisl, CPA
Valuation Briefs
Can Marketability Discounts Apply When Valuing Controlling Business Interests?

Discounts for lack of marketability are well established when valuing minority interests in closely held businesses. But many valuation experts believe that controlling business interests also warrant a marketability discount to reflect the uncertainty and risk associated with the timing of the sale and the ultimate price. Here’s a closer look at this issue. Minority (non-controlling) interests In a business valuation context, “marketability” refers to the ability to quickly convert property to cash at minimal cost. While publicly traded stocks are readily marketable, interests in private companies typically require substantial time, cost and effort to sell. To the extent that public stock data is used to value private businesses, a discount may be warranted to reflect the lack of marketability. Marketability discounts are well established when valuing minority...

06 Oct 2024
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How Market Uncertainty Can Affect Business Value

Roger Rossmeisl, CPA
Valuation Briefs
How Market Uncertainty Can Affect Business Value

Businesses face uncertain conditions today, including geopolitical and cybersecurity risks, inflation concerns, environmental issues, and a lack of clarity about future tax laws and interest rates. Here’s an overview of how business valuation professionals factor these kinds of issues into their value conclusions. Market analysis Before crunching the numbers, valuators must fully understand the market conditions in which the subject company currently operates. This involves evaluating macroeconomic indicators (such as growth in gross domestic production, inflation rates, interest rates and unemployment levels) and industry-specific factors (such as market trends, competitive landscape and regulatory changes). Analytical procedures may need to be more robust during times of market volatility. Valuators can’t presume that the subject company will maintain the status quo in uncertain markets. Moreover, some industries may be more...

29 Sep 2024
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What Drives Value for Manufacturing Companies?

Roger Rossmeisl, CPA
Valuation Briefs
What Drives Value for Manufacturing Companies?

Manufacturers are as varied as the products they make. They come in different sizes and specialties. So no universal formula applies when determining their value. Instead, a business valuator must fully understand the subject company’s operations to arrive at an accurate value conclusion. Here’s a closer look at seven factors that affect value in the manufacturing sector: 1. Financial performance. Regardless of the subject company’s industry, value is largely driven by financial health and stability. Income statements provide insights into historical revenue trends, profit margins and cost structures. Valuators also analyze balance sheets and cash flow statements. Key metrics that are considered include liquidity ratios, debt levels, and sources and uses of operating cash flows. A strong financial position may demonstrate that a company invests in growth...

09 Sep 2024
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Supreme Court: COLI Proceeds are Included in Business Value

Roger Rossmeisl, CPA
Valuation Briefs
Supreme Court: COLI Proceeds are Included in Business Value

A recent U.S. Supreme Court ruling resolves a circuit split on a business valuation issue — and it could have a major impact on the value of many closely held companies going forward. In Connelly v. IRS (144 S. Ct. 1406, 2024), the Court held that corporate-owned life insurance (COLI) designed to fund the redemption of a deceased shareholder’s stock under a buy-sell agreement should be considered a corporate asset when calculating the value of the decedent’s shares for purposes of the federal estate tax. Here’s a summary of the case and how it may affect owners of other private companies. IRS challenges estate’s valuation Two brothers co-owned a building supply company. They entered into a buy-sell agreement to ensure that the business remained in the family if...

09 Sep 2024
0

Valuing a Business for a Dissenting or Oppressed Shareholder Case

Roger Rossmeisl, CPA
Valuation Briefs
Valuing a Business for a Dissenting or Oppressed Shareholder Case

Shareholders who own a minority interest in a business may not always agree with key decisions made by controlling shareholders. For instance, a minority shareholder might object to a stock-for-stock or “squeeze-out” merger. Or, if a proposed transaction will reduce a minority shareholder’s compensation or divert corporate assets, that individual may file an oppression suit. In such cases, courts will often apply a “fair value” remedy. What is fair value? Most states have adopted the Model Business Corporation Act (MBCA), which entitles dissenting or oppressed minority shareholders to receive fair value for their interests. Under the MBCA, fair value is the value of the shares immediately before the corporate action to which the dissenter objects. It generally excludes any change in value in anticipation of the corporate...

11 Aug 2024
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A Business Valuator is a Must-Have When Filing a Business Interruption Claim

Roger Rossmeisl, CPA
Valuation Briefs
A Business Valuator is a Must-Have When Filing a Business Interruption Claim

Meteorologists warn that the 2024 hurricane season could break records, possibly surpassing 2020, the worst hurricane season on record. Even if hurricanes aren’t a threat where your business operates, other natural disasters — such as floods, wildfires and tornadoes — could impact your normal operations. Interruptions from these disasters and other crises can cause significant financial losses. Business owners may purchase business interruption insurance to safeguard against potential losses. These policies can allow you to recoup lost profits, repair damaged assets and cover other incremental expenses. When a covered event occurs, it’s important to hire a business valuation professional to explain your coverage and estimate your losses. Understanding your coverage Business interruption insurance is arguably one of the most complicated insurance products on the market today. And most...

05 Aug 2024
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Valuing a Business for a Divorce

Roger Rossmeisl, CPA
Valuation Briefs
Valuing a Business for a Divorce

When a marital estate includes an interest in a closely held business, determining its value for purposes of dividing up assets for a divorce settlement can be challenging. Additionally, part or all of the business may be excluded from the marital estate, depending on state law, legal precedent and prenuptial agreements between the spouses. A business valuation professional can help the parties achieve a fair outcome. 2 components of value The value of a business can be broken down into two pieces. First up are tangible (or hard) assets. Examples include such items as cash, receivables and equipment. Most of these items are recorded on a company’s balance sheet. The difference between the combined market values of tangible assets and liabilities (such as payables and bank debt)...

21 Jul 2024
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Business Owners: Understanding Value is Key to Updating Your Estate Plan

Roger Rossmeisl, CPA
Valuation Briefs
Business Owners: Understanding Value is Key to Updating Your Estate Plan

Summer is a great time for business owners to review their estate plans. Maybe your kids are home for summer break, so they’re top of mind. Or perhaps you’re vacationing with relatives or getting together for a backyard BBQ. Whatever the reason you’re spending time with your family, consider having an open discussion with them about your estate planning goals — and how your business fits in your overall plan. Before you have a family meeting, however, you’ll need to get a handle on how much your business is worth today. In uncertain markets, the value of your business may differ from your expectations. One more reason There’s another important reason to have your discussion soon: Today’s generous federal gift and estate tax exemption is set to expire...

ROGER ROSSMEISL, CPA

Kho & Patel CPAs
160 E. Arrow Highway
San Dimas, CA 91773

(714) 325-0442
roger@khopatel.com

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