A good explanation of the “Single Appraiser: Select Now, Value Now” recommendation from my book Buy-Sell Agreements for Closely Held and Family Business Owners was recently featured in NACVA’s email newsletter. Read it here (also includes a link to the original article on Mercer Capital’s website further explaining this buy-sell agreement recommendation).
Buy-sell agreements are ownership transition plans in disguise. Few business owners think about their buy-sell agreements in this light, but if your agreement is triggered, either through the death of a shareholder or otherwise, then ownership will change hands. Your buy-sell agreement is really ownership transition on autopilot. The real question is whether you, the other owners and the company will land safely when a trigger event occurs or if some or all of you will crash and burn. This short post addresses a simple question: Do you know what will happen if your buy-sell agreement is triggered?
WARNING. Portions of the great majority of buy-sell agreements (or relevant portions of operating agreements) addressing the valuation of interests when trigger events occur are seriously flawed. As a result, they are destined to create time-consuming, expensive, and emotional disputes between buyers and sellers when they are triggered. Most attorneys and business owners do not seem to believe me, but recent experience only reinforces the need for this warning post.
EBITDA is at the same time the most discussed and most maligned measure of business cash flow. Simply put, EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization. The problem with EBITDA is that too often analysts or market participants or writers want to think that there is a single measure of cash flow that will reveal all, bringing Utopia to valuation. This post notes 11 things that EBITDA is not or will not do—and compares other cash flow measures according to the same criteria. Utopia does not exist and there is no valuation elixir. Sadly, we actually have to analyze companies to value them or buy them or sell them.
My last post described an early promissory note valuation that provided me with an object lesson in humility. This post is the follow-up to show that it is possible to learn from such lessons and to lay the groundwork for future growth. The ending of this two-part series is happier than its beginning!
I’ve said many times that no formula agreement can be written that will provide reasonable valuation calculations over time under all circumstances involving a company, its industry, the national economy, conditions in the financial markets, and more. This week, I review the case, Roth v. United States, 511 F. Supp. 653 (E.D. Mo. 1981) and the appeal to make this point.
In May, I’ll be speaking at the AAML/BVR National Divorce Conference in Las Vegas. My topic is “How to Present Complex Finance to Judges.” Given that every divorce trial I’ve seen has been a bench trial, the topic focuses on judges. However, many of the same presentation techniques are certainly applicable to juries, as well.
The idea for this post is simple. I’m asking readers to provide me with examples of the best demonstratives they have seen to present complex financial and valuation issues in court. I’ll also be talking about concepts and ideas, so any thoughts regarding conceptual approaches or philosophical approaches to court testimony would also be helpful.
If your company or your clients’ companies have formula pricing for their buy-sell agreements, the likelihood of future problems is high. It is just not possible to foresee all possible future circumstances when setting a formula today. The solution to these problems lies in a Single Appraiser, Select Now and Value Now valuation process.