As the ASA International and Business Valuation Conference wraps up at the Marriott Marquis at Times Square in New York City, I took a couple of minutes to talk about the conference on this Valuation Video. I spoke on building strong referral networks with Jay Fishman and summarize seven key points he made and eight key points I made in the video. I also discuss a bit about the conference and folks I spent time with while there. If you weren’t there, you missed a good conference.
Beyond a shadow of a doubt, if you own stock in a closely held or family business today, there will come a time in the future when you do not own or control it. This Valuation Video examines the Business Ownership Transfer Matrix that dictates that you will sell or transfer your shares, either partially or totally, and either voluntarily or involuntary. If you don’t plan ahead, the Law of Unintended Consequences may come into play. When you transfer stock involuntarily, you lose control over what happens, and things can happen that you didn’t intend. Promises may not be kept, estate taxes may be maximized, control may shift unexpectedly, and on. So plan ahead!
Kashmiry v. Ellis is a recent Ohio appellate case regarding the buy-sell agreement portion of a shareholders’ agreement. The case reinforces a number of things I have been “preaching” about for years. If a buy-sell agreement has provided for an annual valuation by agreement of the parties, then the parties must reach agreement annually. If the agreement then provides for a valuation mechanism to determine the price following a trigger event, then the valuation process should be clearly defined and workable.
It is a fact that for every use of the single period income capitalization method, where a single assumption about expected earnings is made as a representative of “expected” earnings, there is an implied forecast of earnings and an implied use of the discounted cash flow method. This Valuation Video provides two looks – and two forecasts – for a company that might have been prepared by two different appraisers. The question addressed in this Valuation Video is whether the “forecasts” used in single-period income capitalizations are reasonable and the best representation of near-term expected cash flows and their future growth. I think the perspectives offered will be worth your time to listen to the video or to read the transcript.
This video post asks business owners and advisers two questions: 1) Is your company’s (or your clients’ companies for advisers) dividend policy a good one that is meeting the needs of its owners for current income versus capital appreciation? And 2) If not, do you need to be working on your dividend policy to improve its effectiveness?
The WACC, or Weighted Average Cost of Capital, is an enterprise level discount rate used in capitalizing debt-free income measures and in terminal value calculations for DCF methods. There is virtually no readily available market evidence regarding WACC. On the other hand, there is substantial relative and comparative information available regarding EBITDA multiples. This video post discusses how to convert a WACC, which most market participants and appraisers know little about, into an EBITDA multiple for a company based on its own unique circumstances. And, as promised, we do so in three easy steps.
I have read too many buy-sell agreements to count. The typical valuation process in them (for appraisals following trigger events) range from 150 words to perhaps 300-400 words. That simply is not enough “wordage” to describe or define any valuation process, much less an appraisal. I started focusing on the seven defining elements over the years as I experienced problems with each and every one of them in troubled or litigated valuation processes where I was either an appraiser or a consultant. Do your clients’ buy-sell agreements adequately define the seven elements? Or does your company’s agreement do the same? If they are not clear in an agreement, future trouble is almost certainly lurking.