Business valuation issues
1 / 26

Business Valuation Issues - PowerPoint PPT Presentation

  • Updated On :

Step by Step Process for Selling Your Business to Your Employees. Business Valuation Issues. 20 th Annual OEOC Conference - April 21, 2006 Rosanne J. Aumiller, CPA/ABV, ASA [email protected] 216.566.9000. Introduction.

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

PowerPoint Slideshow about 'Business Valuation Issues' - jana

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Business valuation issues l.jpg

Step by Step Process for Selling Your Business to Your Employees

Business Valuation Issues

20th Annual OEOC Conference - April 21, 2006

Rosanne J. Aumiller, CPA/ABV, ASA

[email protected]


Introduction l.jpg
Introduction Employees

  • Barnes Wendling has served Northern Ohio’s closely-held businesses since 1946.

  • Our core clients are privately owned middle market companies.

  • We consider confidentiality, independence, senior level involvement, integrity, & relationship building to be critical success factors.

Slide3 l.jpg

Where to Find Us Employees


1799 Akron-Peninsula Rd. #222

Akron, OH 44313

(330) 701-0128


1215 Superior Avenue, Suite 400

Cleveland, OH 44114

(216) 566-9000

Sheffield Village

5050 Waterford Drive

Sheffield Village, OH 44035

(440) 934-3850


1616 Sycamore Line

Sandusky, OH 44870

(419) 627-2770


48 Executive Drive

Norwalk, OH 44857

(419) 668-8296

Slide4 l.jpg

Estate and Gift Tax Planning Employees

Buy Sell Agreements

Succession Planning

Family Limited Partnerships


Mergers and Acquisitions

Intangible Asset Valuation

Financial Modeling

Buyer/Seller Due Diligence

ESOP Feasibility Study

Appraisal Review

Appraisal Consulting

Raising Capital / Re-Capitalization



Business & Strategic Planning/Budgeting/Forecasting

Capital Budgeting

Debt Restructuring

Obtaining Financing

Business Valuation

Litigation Support

Forensic Accounting

Corporate Finance

Some questions raised l.jpg
Some Questions Raised... Employees

  • What should an ESOP Trustee look for in an appraiser?

  • What is a business valuation?

  • What creates value in the ESOP sponsoring company?

Organizations credentials l.jpg
Organizations & Credentials Employees

American Society of Appraisers

  • ASA Accredited Senior Appraiser

    American Institute of CPAs

  • ABV Accredited in Business Valuations

    National Association of Certified Valuation Analysts

  • CVA Certified Valuation Analyst

    Institute of Business Appraisers

  • CBA Certified Business Appraiser

Number of professionals l.jpg
Number of Professionals Employees

American Society of Appraisers - 2,313 Accredited Members

American Institute of CPAs - 1,701 ABV Holders

Nat’l Assoc. Cert. Val. Analysts – 4,800 CVA Designees

Institute of Business Appraisers – 465 CBAs

It Boils Down to A Relatively Small Number

Source: Borrowman Baker

What is a business valuation l.jpg
What Is a Business Valuation? Employees

  • Product

    • comprehensive written report

    • gives the reader a logical, supportable value conclusion

    • company history, products/services, personnel, markets, economy, analysis, conclusion

  • Service

    • key is client should understand content

Valuations have multiple uses l.jpg
Valuations Have Multiple Uses Employees

XYZ Company may have different “values” depending on the “level of value” and the “standard of value”

The valuation process l.jpg
The Valuation Process Employees

  • Identify

    • Purpose – ESOP transaction or annual update

    • Level of Value - control or minority

    • Standard of Value - fair market value

    • Date of Valuation

    • Key Issues – adjust owners' comp; leverage

Minority vs control interest impact on value l.jpg
Minority vs. Control Interest EmployeesImpact on Value


  • Ohio 2/3 ownership or

  • Greater than 50% voting or

  • As defined in a shareholder agreement

  • Large enough block to control mgmt. decisions


  • Discounted value

  • No individual ability to affect mgmt. decisions

Levels of value l.jpg

Synergistic (Strategic) Value Employees

Controlling Interest Value

Minority Discount

Control Premium


Marketable Minority Interest Value - as if freely traded on an active public market

Discount for Lack of Marketability

Non-marketable Minority Interest

Levels of Value

Standards of value l.jpg
Standards of Value Employees


  • Fair Market Value - hypothetical willing buyer/seller, refer to Rev Ruling 59-60

  • Investment Value

  • Strategic Value

  • Fair Value

Irs revenue ruling 59 60 set the guidelines for valuing private interests l.jpg
IRS Revenue Ruling 59-60 EmployeesSet the guidelines for valuing private interests

Fair Market Value

“The amount at which property would change hands between a willing buyer and a willing seller, when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.”

Irs revenue ruling 59 60 l.jpg
IRS Revenue Ruling 59-60 Employees

Eight factors to consider:

  • Nature of the business & history

  • Economic & industry outlook

  • Book value of stock & co. financial condition

  • Earning capacity

  • Dividend paying capacity

  • Intangible value - goodwill or other

  • Sales of stock and size of block

  • Market price of similar public stocks

Dol requirements l.jpg
DOL Requirements Employees

  • ESOP cannot over pay for stock – adequate consideration

  • FMV as of transaction date

  • Utilize qualified valuator as professional advisor to the trustee

  • Valuator – independent of ESOP, Company & selling shareholder(s)

  • Similar to IRS Revenue Ruling 59-60

Two key drivers l.jpg
Two Key Drivers Employees

  • Future Cash Flow Available to Shareholders

  • Volatility or Risk Associated with Future Cash Flow

Factors that drive value l.jpg
Factors that Drive Value Employees

  • Internal Factors:



  • External Factors:

    Economic climate

Factors that drive value total invested capital l.jpg
Factors that Drive Value EmployeesTotal Invested Capital

  • After initial valuation stock price may decline if leveraged

  • As debt is repaid, stock price increases

How is a business valued l.jpg
How is a Business Valued? Employees



Value is based upon….

Estimated future profitability (cash flow)

Discounted Cash Flow


Capitalized Earnings


Historical profitability/ (cash flow)

Private company transactions involving similar businesses

Comparable Sale


Guideline Company


Public company stock prices


Adjusted Net Assets

Appraisal of hard assets

Discounts and premiums l.jpg
Discounts and Premiums Employees

  • Minority discount

  • Control premium

  • Lack of marketability

  • Key person discount

  • Blockage discount

What goes into our work l.jpg
What goes into our work? Employees


Industry Data

Research Insight (Standard &Poor's Public Company Data)

Partnership Profiles (Database of limited partnership transactions)

Pratt's Stats Database (Private company transactions)

FactSet Mergerstat Transaction Data

Various trade and industry publications

Unique Resources

BW’s Proprietary Internal Database (Given the number of engagements we have completed, we have a huge body of valuation data)

ScanUS (Mapping software used to graphically display relevant data can be a powerful analysis tool)


External Resources

Financial Consulting Group (Access to the knowledge of hundreds of valuation professionals)

CPA Associates International

Association of Certified Fraud Examiners

What information do we need l.jpg
What Information Do We Need? Employees

Financial & Operational Data

  • Capital expenditures over the last 5 years and plans for the future

  • Distributions/dividends paid

  • Industry data the company may receive as part of a trade group

  • Sales by product line

  • Summary of employees by function, organizational chart, terms of labor contracts if applicable

  • Owners compensation for last 5 years

  • Complete document request will be provided

  • Five years of financials and tax returns

  • Business plan or budget for next 1 to 5 years

  • Shareholder agreements

  • Fixed asset/depreciation schedules

  • Terms of debt

  • Terms of capital and operating leases

  • Identify competitors

  • Management structure

Valuation process timeline l.jpg
Valuation Process Timeline Employees

Data Request – List to Client

Analyze Financials/ Operational Data

Site Visit and Interview

Apply Valuation Methods

Client gathers data

Present Final Report to Client

Final MSDP

Week 1

Week 2

Week 3

Week 4

Draft Report

Identify Key Issues

Research Comparable Transaction Data

Conclusion l.jpg
Conclusion Employees

  • Challenge - to balance objectivity with providing a reasonable value range to meet client’s needs

  • Questions?

  • Thank you