As thoughts turn to the tasks to be accomplished in 2017, it may be helpful to recap what topics were covered in 2016, as well as touch on the Valuation newsletter focus for 2017. As you are working on strategic planning for the year, you may find it useful to reference these topics.
JANUARY 2016 RECAP: UNDERSTANDING WHEN YOU NEED A VALUATION
A business valuation is needed for certain lifetime events. An analysis of the value of a business would be beneficial if you are over 45 and own a business, or if you are planning on buying or selling, passing down, or closing the business. Each of these events is dependent upon knowing where the value of your business lies, and working with a valuation consultant can uncover the pros and cons of each. Whatever situation you find yourself in, it is important to plan ahead.
FEBRUARY 2016 RECAP: WHO IS QUALIFIED TO PERFORM VALUATIONS
Professionals who are qualified to perform valuation are CPAs and consultants that have attained the CVA, ASA, CBA and/or ABV credentials. However, any valuation advisor should be unbiased, and it is a good idea to have the opinion peer reviewed. Depending upon your requirements, you may need either a Calculation of Value or a Conclusion of Value. Your valuation advisor should make the appropriate recommendations dependent upon the purpose and scope of your need. To ensure you retain the appropriate service, work closely with your valuation advisor, clearly define the purpose of the engagement, and provide as much information as possible at the beginning of the process.
MARCH 2016 RECAP: SUCCESSION PLANNING AND EXIT PLANNING
There are many external economic factors that affect business value. Business owners, along with their valuation advisor, must consider how the economy affects market value. In addition, other factors that affect value, including expected cash flows, perceived risk, expected growth, marketability and other discount factors should also be considered.
APRIL 2016 - AUGUST 2016 RECAP: BUSINESS TRANSITIONS STRATEGIES
Business liquidation is one business transition strategy and is defined as the conversion of assets to cash. When liquidating a business, it is important to be realistic, make a plan, and have a deadline.
Other business transition strategies are internal transitions (i.e. transfers or sales to family, co-owners, employees) or external transitions (i.e. transfers to a charitable trust, sales to third parties, sales of an interests. All business owners should consider a written transition plan as they prepare for the 5D’s: Death, Divorce, Disability, Distress, Disagreement.
Well in advance of moving forward with a transfer or sale, the business owner needs to pull together key advisors to help assess the strengths and weaknesses of their business. Meeting early in the process with advisors, such as accountants, attorneys, financial planners, insurance advisors, and valuation specialists, allows enough time to conduct the appropriate assessments. Prioritized actions plans should be addressed within 90-day sprint periods.
However, the best preparation is identifying and removing risk from the business. The business owner should work closely with advisors to develop and implement a strategic plan. With clear insight, the business owner will have enough information to make a sound financial decision, including whether to sell or keep the business.
SEPTEMBER 2016 - DECEMBER 2016: IRC SECTION 2704 PROPOSED CHANGES
IRC Section 2704 is the portion of the tax code which has allowed the use of discounts when determining business value. In August 2016, the Department of the Treasury and the Internal Revenue Service proposed significant changes to Section 2704 which would effectively eliminate consideration of any valuation discounts when gifting ownership interests to family members. In October 2016, bills in both the House and Senate were introduced to nullify the proposed regulations.
Comments on the proposed regulations by concerned stakeholders were submitted to the IRS on November 2, 2016. According to the US Treasury website, a total of 9,762 comments were received. On December 1, 2016, the IRS held hearings to discuss comments and finalize the new regulations.
After the 2016 Presidential election, there was uncertainty with regards to the proposed changes. However, with uncertainty comes opportunity. The Valuation Team at Brinker Simpson & Co. will continue to monitor the evolving position of the Congressional and Presidential agenda as it relates to valuation and related reporting mandates.
A LOOK AHEAD TO 2017
As we head into 2017, we will share more technical subjects related to business valuation, fiscal analytics, and exit planning, and how they can improve your decision-making. We plan to consider topics concerning revenue, expense, and working capital analyses. In addition, we will consider topics about how the marketplace changed this year and potential impacts to the bottom line, how to operationalize portions of your business to gain efficiency and add value, and how does the state of your business intersect with personal long-term goals.
Our goal for 2017 is to help our clients develop a road map to maximize the value of the businesses and minimize taxes, while ensuring they are able to accomplish all their personal and financial goals in the process. If you are interested in more information, please contact us.
We hope you enjoyed reading this issue of Business Valuations Letter. Whether you are planning your estate, settling a dispute or selling/buying a business, it is critical to have a sound, professional valuation opinion from a firm that will stand behind its conclusions. Lenders, insurers, the courts and government agencies are increasingly insisting on expert opinions to support claims where value is concerned.
Brinker Simpson's expert valuation consultants specialize in providing confidential business valuation services for closely-held and family owned companies, professional practices and partnership interests. We will work directly with you or one of your other trusted business advisors.
Whether you're planning for the future or dealing with a situation at hand, through careful analysis we will develop an independent, unbiased valuation report for your business.
For any questions regarding this newsletter or any valuation issues or concerns you may have contact our leaders of valuation services who are members of The National Association of Certified Valuation Advisors and Analysts (NACVA):