bar association presentation 20111020

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Brian Walters and AssociatesBusiness Valuation/

Management Consulting Services

Brian Walters, CEOBrian Walters and Associates, Inc.

Office: (512) 924-3979

Email:[email protected]

Twitter:twitter.com/BWA_ConsultantsBlog:bwaconsultants.wordpress.com
mailto:[email protected]://www.twitter.com/BWA_Consultantshttp://www.bwaconsultants.wordpress.com/http://www.bwaconsultants.wordpress.com/http://www.twitter.com/BWA_Consultantsmailto:[email protected]


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Primary services offered:

Business ValuationsBuying/selling

Partnership Disputes

DivorcesStrategic Planning


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Primary services offered:

Management ConsultingPricing analysis/profit maximization

Budgeting and cash flow

management

Misc. Human Resource issues


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AGENDA

Case StudySituation

Problem/Source of Problem

Solution

Certification- is it important?

The Elephant in the Room


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Case Study-

A Partnership Dispute

John H Client,

Houston, Tx


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The Situation

Client was a partner in a business (33%ownership)

Company:

Sells electrical generators at wholesale(25% of revenue)

Installs and services generators (75% ofrevenue)


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Produces $1.6 million in annual revenues

Stated cash flow of approximately $50,000annually

Client had a major disagreement with his

business partner, and they both decided that he

needed to be bought out of the business


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A business valuation needed to be

conducted to establish the value of the

business

33% of the value of the business needed to

be determined, net of any applicable

discounts, as a payment to client


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Problem:

My clients former partner had his

business valued, and came up with a valueof

$59,000

My clients share of the business that hehelped to start was stated at

$20,000


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Source of Problem:

The Business valuations industry is anunregulated one

Business valuations are part science, partart, leaving room for creativity

The issue of incentive


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Solution:

Perform a proper business valuation


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Step I: Establish Sellers Discretionary CashFlow

Includes activities commonly referred to asre-casting the financials

Start with the business pretax earnings.

Add non-operating expenses and subtractnon-operating income. Add unusual or one-time expenses,subtract non-recurring income.


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Step I: Establish Sellers Discretionary CashFlow

Adjust for any non-cash expenses/incomestreams

Add a single owner's total compensation.

Adjust compensation of all other businessowners to market value.Understand what comprises any catch-allline items


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Step I: Establish Sellers Discretionary

Cash FlowThe goal is to place into context any line

items that are out of line

The assumption is that most businessowners manage their financials to

minimize taxable income


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Step II: Choose Valuation Methods

3 Groups of Valuation Methods:Asset-based

Market-based

Income-based


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Step III- perform the computations,

and SYNTHESIZE THE RESULTS.


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Questions?


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Certification- is it important?

Pay LESS attention to the individualcertifications that a valuation

specialist has

Pay MORE attention to IRS Ruling59-60 and USPAP Requirements


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IRS 59-60:

E. Dividend Paying Capacity of the EnterpriseF. Goodwill and Intangible Assets

G. Recent Sales of Stocks

AndH. Market Value of Comparable Companies


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IRS 59-60:

In valuing the stock of closely held

corporations, or the stock of corporationswhere market quotations are not available,

all other available financial data, as well as all

relevant factors affecting the fair marketvalue must be considered


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USPAP Requirements:

Among other things, USPAPsimply

requires that appraisers be familiar with andcorrectly

utilize those methods which would beacceptable to other appraisers familiar with

the assignment at hand and acceptable to theintended users of the appraisal.


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PLEASE NOTE:

It is more important for a valuation toconform to IRS Ruling 59-60 and USPAP, thanfor its author to be a certified appraiser.

Even if an appraiser is certified, he/she can

still produce a report that does not complywith IRS Ruling 59-60 or USPAP.


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Certifications owned by appraiser:


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The Elephant in the

Room


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Questions?

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