Can You Defend Your Cap Rate?
A major factor affecting the value of a business in the income valuation approach is the capitalization rate (cap rate) used. This explains how to assess if the cap rate in the business valuation you are reviewing makes sense using examples.

People Valuations
Some family law attorneys and their appraisers are transforming individuals into “companies” in an attempt to manufacture a goodwill "value" that does not exist in the real world.

Active-Passive Appreciation in Business Valuation in Divorces- The Same Old Inflation Argument
A critical look at the common assumption that inflationary forces automatically result in a passive increase in a company's value over time.

Active/Passive Appreciation: Voodoo or Science?
The use of regression analysis is a powerful tool in supporting the active and passive components in the appreciation of company business value over time.

Regression Analysis in Business Valuation Engagements
Regression analysis is a powerful tool with a number of useful applications in business valuation, including the application of proper public company and private transaction multiples and the determination of active and passive components of the change in company value over time. Originally published in 2008 in Business Valuation Review, it was just republished by that same publication in its Spring 2019 issue as one of its interesting articles of the last 40 years that added to the knowledge of the business valuation field.

Professional Practice Buy-Sell Agreements- Do They Equal Fair Market Value?
Careful analysis of entry and exit payments from a professional practice is necessary to determine whether the stated price in a buy-sell agreement represents the fair market value of the practice interest.

Professional Practice Buy-Sell Agreements- Do They Equal Fair Market Value?  Part II- The Courts
North Carolina and federal courts caution that a buy-sell agreement value is not necessarily determinative of the fair market value of an interest in a professional practice.

Breaking Bad in the Business Valuation Profession
Calculations of value (a/k/a valuation meth) continue to be used in contexts for which they were never intended (litigation and gift and estate tax), resulting in inadequate and potentially biased indications of value.

Calculation Engagements: Still Broken, Still Bad
In responding to the original “Breaking Bad” article, the architects, proponents and defenders of calculation engagements repeatedly admit the numerous significant problems with this product, including the fact that calculation engagements are “not sufficient,” “not reliable,” “not believable,” “always incomplete,” do not have “reasonable certainty,” etc.

Rohling the Dice with a Calculation Engagement
The 2018 Rohling case in Alabama in which a calculation engagement with no opposition was accepted in a divorce trial is further evidence of “calculation creep” in the business valuation field and the increasing use of this highly flawed and unreliable product.

The Dart Throw Business Valuation Method: The Calculation of Value or Calculation Engagement
Calculations of value are attractive due to their lower cost and relative lack of analysis versus a proper business valuation report, however, the end result may be little more than a dart throw as to the value.

Attorneys Breathe a Sigh of Relief: Simplot Tax Court Ruling Overturned
The Simplot case is fortunately overturned by a higher court.

If You Can't Come Through the Family Attribution Front Door, Try the Back: The IRS Swing Block Position for Valuations
The IRS position on swing blocks in TAM 9436005 may impact the ability to take a discount for lack of control on a minority interest in a business valuation.

Minority Shares: Dividends and Their Crucial Impact on Value
The existence of dividends (or lack thereof) can have a key impact on the value of a non-controlling interest in a private company.

Premium for Voting Stock in Simplot
The Simplot case illustrates an improper and illogical adjustment for a premium for control.

Auto Dealership Values: A Key Time for Wealth Maximization and Planning
Analysis of the impact of consolidation on industry valuations with a particular focus on automobile dealerships.

Avoiding "Good" and "Bad" Economy Bias in Business Valuations
Unintentional bias (either good or bad) can unduly influence a business valuation.

What Does Industry Consolidation Mean for Your Company's Value?
The impact of industry consolidation on the valuation of private companies.

ESOPs and S Corporations
ESOPs owning stock in an S corporation have unique valuation issues.

ESOPs- Worth a Closer Look
An overview of ESOPs and their related valuation issues.

Excess Earnings Valuation Method: Is It Time to Put it Out to Pasture?
The excess earnings method should be discontinued as it is illogical, far too subjective, is easily manipulated to achieve a desired result, has been discredited by its developer, is widely rejected by the business valuation community, and is never used for real-world transactions.

Kick the Habit: The Excess Earnings Method Must Go
The excess earnings method should be discontinued as it is illogical, far too subjective, is easily manipulated to achieve a desired result, has been discredited by its developer, is widely rejected by the business valuation community, and is never used for real-world transactions.

Family Limited Partnerships with Marketable Securities
An overview of the valuation of family limited partnerships or limited liability companies holding marketable securities.

Family Limited Partnerships with Real Estate
An overview of the valuation of family limited partnerships or limited liability companies holding real estate.

The Beginning of the End for Family Limited Partnerships and LLCs?
FLPs and LLCs continue to be at risk as to the potential reduction or elimination of the ability to take discounts. Also, market data used in the valuation of these entities continues to dwindle.

Using Business Techniques to Quantify Discounts for Fractional Interests in Real Estate
An overview of the fractional interest / partition analysis.

How Comparable Are Your Public Company Business Valuation Comparables?
Careful research and analysis is necessary to understand what can be significant differences between public companies and the private company and to adjust and apply the appropriate multiples.

Public and Private Company Business Valuation Differences
Careful research and analysis is necessary to understand what can be significant differences between public companies and the private company and to adjust and apply the appropriate multiples.

Regression Analysis in Business Valuation Engagements
Regression analysis is a powerful tool with a number of useful applications in business valuation, including the application of proper public company and private transaction multiples and the determination of active and passive components of the change in company value over time.

Income Approach OCD
Some attorneys, judges and business appraisers focus exclusively on the income valuation approach in business valuation, incorrectly excluding the guideline transaction method (market approach based on comparable sales).

In Defense of the Merged and Acquired Companies Valuation Method
The Guideline Transaction Method, while not perfect, is a valid and well-accepted valuation methodology.

Regression Analysis in Business Valuation Engagements
Regression analysis is a powerful tool with a number of useful applications in business valuation, including the application of proper public company and private transaction multiples and the determination of active and passive components of the change in company value over time.

The Forest and The Tree
This parable illustrates the dangers in business valuation of excluding the guideline transaction method due to its alleged shortcomings in favor of the "more reliable" income approach.

The Selective "Expert"
Beware of business appraisers with a pre-determined bias to exclude a particularly methodology (here, the guideline transaction method).

The Top 10 Errors Made Using the Merged and Acquired Companies Valuation Method
A list of some of the most common errors made in the use of the Guideline Transaction Method in business valuations.

Are Smaller Companies More Risky?
Market data indicates that smaller companies are riskier than larger companies, thus requiring a higher rate of return. Size, however, is one of many factors that must be analyzed in determining the proper discount or capitalization rate.

Can You Defend Your Cap Rate?
A major factor affecting the value of a business in the income valuation approach is the capitalization rate (cap rate) used. This explains how to assess if the cap rate in the business valuation you are reviewing makes sense using examples.

Critically Assessing a Capitalization Rate: Is it Reasonable?
A basic overview of the various components that go into the determination of the proper capitalization rate.

Income Approach OCD
The exclusive focus on the income approach by some attorneys, judges, and business appraisers incorrectly excludes other business valuation methodologies (particularly the market approach) that may indicate a more accurate value.

The Forest and The Tree
This parable illustrates the dangers in business valuation of excluding the guideline transaction method due to its alleged shortcomings in favor of the "more reliable" income approach.

The Income Valuation Approach
A basic overview of the capitalization of earnings and discounted cash flow methods under the income valuation approach.

The Income Valuation in Action: Doofusgram and the Craft Beer Company
The income valuation is explained in simple terms using the very different examples of a new selfie social media sensation (Doofusgram, Inc.) and a mundane and mature craft beer company (Stinging Nettles, Inc.).

Understanding the Income Valuation Approach: A Primer For Judges
A basic overview of the capitalization of earnings and discounted cash flow methods under the income valuation approach as employed in business valuation.

Hambsters
Refutation of illogical criticism of the Namby Pamby Hamby article and a discussion of the North Carolina Supreme Court's proper interpretation of the fair market value standard in Southern Railway.

Identical Twins (But Not in Equitable Distribution)
Followup to the Namby Pamby Hamby article. The inequity in equitable distribution in trying to determine the value of an interest in a professional practice by using the Poore standard of a person with similar education, experience, and skill as an employee in the same general locale.

Namby Pamby Hamby
In Hamby, the North Carolina Court of Appeals distorts the definition of fair market value to mean the intrinsic value to the business owner.

People Valuations
Some family law attorneys and their appraisers are transforming individuals into “companies” in an attempt to manufacture a goodwill "value" that does not exist in the real world.

Defusing the Gift Tax Valuation Time Bomb: New Adequate Disclosure Rules
Proper compliance with IRS adequate disclosure rules should limit the potential of challenge of old business valuation reports.

Proposed IRS Valuation Guidelines: 1 + 1 = 3
Compliance with IRS business valuation guidelines may reduce the risk of challenge. IRS valuation guidelines also require the consideration of strategic or synergistic contributions to value.

Revenue Ruling 59-60
Revenue Ruling 59-60 is still helpful in many ways but is not a stand-alone guide as business valuation theory has progressed significantly since 1959.

The IRS Does Not Like Your Marketability Discount
The DLOM Job Aid published by the IRS includes detailed analysis of various marketability studies and methods but also provides opinions that allow IRS agents to attack marketability discounts used in business valuations as being too high.

Valuation Discounts- Can You Explain Yours?
The IRS form 709 (gift tax return) requires solid and objective support for any valuation discounts taken.

Jointly Retained Business Valuations in Disputes
An overview of the procedure and process necessary to achieve a successful jointly-retained business valuation engagement.

Selecting the Right Business Appraiser for a Jointly Retained Business Valuation Need
Understanding the difference in the various business valuation certifications is necessary to ensure that a qualified business appraiser is selected.

Valuation Report Content in Jointly Retained Valuation Assignments
A summary of some of the key elements that should be included in a professional business valuation report.

A Sampling of Valuation Cross-Examination Questions
A sampling of business valuation cross-examination questions.

Daubert, We Hardly Knew Ye
Federal cases such as Daubert and Kumho Tire may have limited applicability as to the ability to exclude expert testimony in North Carolina.

Evaluating Valuation Reports and Testimony
The Daubert and Kumho Tire cases provide new ammunition to exclude insufficient and/or biased valuation reports. This articles provides considerations in reviewing business valuation reports and testimony.

The Most Common Sins in Faulty Valuations
A list of some of the most common errors made in business valuation reports.

The Selective "Expert"
Beware of business appraisers with a pre-determined bias to exclude a particularly methodology (here, the guideline transaction approach).

The Top 10 Errors Made Using the Merged and Acquired Companies Valuation Method
A list of some of the most common errors made in the use of the Guideline Transaction Method in business valuations.

Discounts for Lack of Marketability: A Review of Studies and Factors to be Considered
There is no such thing as a “standard marketability discount” as a number of factors must be considered for each company.

Marketability Discounts: Is New Really Better?
Although a number of new, quantitative marketability models have been introduced in recent years, none of them has proven to be better than the restricted stock and IPO studies that have been the bedrock of marketability discount determination for years.

Marketability Discounts: The Mandelbaum Cases Raises Key Issues
The Mandelbaum case provides ten factors that must be analyzed in an appropriate marketability discount analysis.

The IRS Does Not Like Your Marketability Discount
The DLOM Job Aid published by the IRS includes detailed analysis of various marketability studies and methods but also provides opinions that allow IRS agents to attack marketability discounts used in business valuations as being too high.

The 35% "Standard" Marketability Discount: RIP
There is no such thing as a “standard” marketability discount as each company and situation requires a unique analysis to determine the appropriate marketability discount.

Medical Practice Sales to Hospitals: Part 1
An overview of the considerations and complexities of medical practice valuation.

Medical Practice Sales to Hospitals: Part 2
An overview of the considerations and complexities of medical practice valuation with a particular focus on the information-gathering process.

Medical Practice Sales to Hospitals: Part 3
An overview of the considerations and complexities of medical practice valuation with a particular focus on the income approach.

Personal Versus Practice Goodwill: A Visit to the "Plastics Doc"
An example and analysis of how to determine and distinguish personal from professional (or practice) goodwill given a particular set of facts.

Professional Practice Buy-Sell Agreements- Do They Equal Fair Market Value?
Careful analysis of entry and exit payments from a professional practice is necessary to determine whether the stated price in a buy-sell agreement represents the fair market value of the practice interest.

Professional Practice Buy-Sell Agreements- Do They Equal Fair Market Value? Part II- The Courts
North Carolina and federal courts caution that a buy-sell agreement value is not necessarily determinative of the fair market value of an interest in a professional practice.

Market Influences on Value
A wide variety of factors affects the market values of businesses.

Moore is Better
In Moore, the South Carolina Supreme Court provides a thorough and logical explanation of (1) the significant differences between personal (professional) and entity (enterprise) goodwill, (2) why personal goodwill is a non-marital asset that is not subject to division, and (3) why entity goodwill is a marital asset that is subject to division.

License Valuation Revisited
A practical illustration of why the valuation of professional licenses makes no sense.

Professional License Valuation Voodoo
The valuation of professional licenses involves a number of speculative and simplifying assumptions that ultimately results in a meaningless value.

Preferred Stock Recapitalization
The recapitalization of a company's equity into various classes can have significant impact on the valuation.

Voting/Non-Voting Recapitalizations in Subchapter S Corporations
Discounts for non-voting stock can be appropriate but are usually much smaller than discounts for lack of control and lack of marketability.

Preparing a Company for Sale. Obtaining the Best Price
An overview of some of the necessary steps to position a privately-held company for sale.

The Importance of Hiring a Qualified Professional Advisor for the Sale of the Closely-Held Business
An overview of some of the issues to be considered by the closely-held business owner who is considering the a sale of the company.

The Key Steps Involved in Successfully Selling the Family Business
An overview of some of the factors to consider in the sale of the privately-held company.

A Fountain Run Dry
The North Carolina Court of Appeals fails to use the widely-accepted Black-Scholes Option Pricing Model in the Fountain case, significantly undervaluing the stock options.

Blockage Discounts for Publicly Traded Stock
Illustration of how to determine an appropriate blockage discount for a large block of publicly-traded stock.

Selling Out to a Public Company: Blockage, Restricted Shares, and Value
Blockage considerations and trading restrictions on shares received from a public company buyer may result in these shares being worth substantially less than their indicated face value.

Valuing Stock Options for Divorce and Estate Planning
An overview of the various inputs in the Black-Scholes Option Pricing Model.

A Gross Result in the Gross Case: All Your Prior S Corporation Valuations Are Invalid
The Gross court ruled that C corporation tax rates should not be applied to the earnings of an S corporation, resulting in a much higher value than otherwise would be determined.

Divorce Valuation Tax Trap!
Reductions and changes in income tax rates in the 2017 Tax Cuts and Jobs Act can have a material impact on the values of C corporations as well as pass-through entities such as S corporations, LLCs, and partnerships.

S Corporations and LLCs: Added Value Due to Tax Status
A tax-affecting adjustment for S corporations and LLCs is now commonly accepted business valuation practice.

Some Observations on Tax Affecting
Additional commentary on the issue of tax affecting.

Back to the Future!
Although there is scattered case law support for it, the consideration and incorporation of events occurring after the valuation date is wrong.

Back to the Future!- Part II
Business valuation standards, business valuation definitions, most case law, and common sense prohibit the consideration and incorporation of events occurring after the valuation date.

Why Time Travel in Business Valuation is Wrong
Additional discussion regarding the problems in using after-the-fact information to value a business or business interest at an earlier date.

Built-In Gains: The Estate of Richmond
Using a fairly novel present value theory, the court's calculation of the trapped-in capital gain in Richmond resulted in an overall discount (including lack of control and lack of marketability) consistent with the 40%+ level seen in other trapped-in gains business valuation cases.

Discounting for Built-in Capital Gains in LLCs, Partnerships, and S Corporations
Case law supports some discount for trapped-in capital gains in the S corporation, LLC, and partnership context, although this support is not objectively defined as it is in the C corporation context.

Dunn Court Allows Discount for Built-In Gains
The Dunn case provides clear authority in the Fifth Circuit for a dollar-for-dollar reduction in value for the trapped-in capital gains liability in the C corporation context. By contrast, North Carolina courts do not allow the same reduction for trapped-in capital gains.

Valuation Discounts for Potential Capital Gains
The Davis and Eisenberg cases establish a preference for a discount for the trapped-in capital gains liability in a C corporation, however, neither case provides an objective standard to compute the discount.

A Declaration of Independence
While advocacy is appropriate in the legal profession, business valuation standards require business appraisers to be independent, non-advocates in providing their opinions of value.

Company Business Risk and Its Impact on Valuation
A detailed analysis of a number of factors is necessary to appropriately determine the various risks of a company for valuation purposes.

Company Financial Risk and its Impact on Valuation
A detailed analysis of a company's financial performance and position, including comparison to industry data, is necessary to appropriately determine the various risks of a company for valuation purposes.

Key Valuation Trends and Their Importance
Highlighting various valuation issues in family law, gift and estate tax planning, health care, and valuation methodologies.

Regression Analysis in Business Valuation Engagements
Regression analysis is a powerful tool with a number of useful applications in business valuation, including the application of proper public company and private transaction multiples and the determination of active and passive components of the change in company value over time.

The Business Appraiser's Role Where Company Accounting Fraud is Alleged
Allegations of fraud may require the services of a forensic accountant. Furthermore, what appears to be “fraud” may be unusual items and/or the use of corporate resources for personal benefit, requiring adjustment by the business appraiser.

The Effective Valuation Interview
An overview of the many questions to ask and issues to determine in an interview for business valuation purposes.

The Justification of Purchase Test: Is it Always Justified?
Even if a business valuation conclusion fails a justification of purchase test as a “sanity check,” the value may still be reasonable.