New Tax Law - The Tax Cut and Jobs Act, 12/22/2017 Good News - 100% Bonus Depreciation for 20 years-life segregated property classfication can be allowed for the property placed after September 27, 2017.
Example - Actual Case I Performed
14-Story Office Building
Purchase Price - $37,170,000
Improvements Basis (for Cost Segregation) except Land - $30,985,316
After Cost Segregation
5-year life class - $5,888,901
(19.01% of the improvements basis)
7-year life class - $154,563 (0.50%)
15-year life class - $324,665 (1.05%)
Total eligible for 100% Bonus Depreciation at the first year (5, 7, 15 years class combined) under the new tax law:
If under the old tax law prior to 09/27/2017, apply the double-declining balance method, the first year (5, 7, 15 years class combined), the depreciation will be:
That is the increase of depreciation benefit of $3,935,206 at the first year.
Assuming a tax bracket of 37% for married filing jointly over $600,000, additional tax savings will be $1,456,026 depending on the individual or entity's tax situation.
Take a huge tax deduction by doing the Cost Segregation. Under the alternative depreciation system, as modified by the Act, the recovery periods for nonresidential depreciable real property, residential depreciable real property and qualified improvements are 40 years, 30 years and 20 years, respectively. The Act extends and modifies the additional first-year depreciation deduction for qualified depreciable personal property by increasing the 50% allowance to 100% for property placed in service after September 27, 2017, and before 2023. After 2022, the bonus depreciation percentage is phased-down to 80% for property placed in service in 2023, 60% for property placed in service in 2024, 40% for property placed in service in 2025, and 20% for property placed in service in 2026. The bill removes the requirement in current law that the original use of qualified property must commence with the taxpayer. Thus, immediate expensing applies to purchases of used as well as new items.
What is Cost Segregation?
Something called cost segregation may help owners of commercial real estate save significantly on their federal income taxes.
The primary goal of a cost segregation study is to identify all construction-related costs that qualify for accelerated income tax depreciation. Small or large, your business can save money with a cost segregation study, typically many times the amount you invest. The Benefits of Cost Segregation We perform a detailed analysis of your commercial property for the purpose of identifying all of the construction related expenses that can be depreciated over 5, 7 and 15 years. The result of our study is the accelerated depreciation of these deductions, reducing your tax liability and increasing your cash flow.
The Benefits of Cost Segregation (applicable to prior to 09/27/2017)
Cost Segregation is a tax planning tool that determines how quickly an owner should be depreciating the property on his income taxes — five years, seven years, 15 years, 27.5 years or 39 years. The Internal Revenue Service allows owners of commercial properties to accelerate depreciation on their real estate, which will result in reducing the property owner’s taxable income levels. A cost segregation study is an in-depth analysis of the costs incurred to build, acquire or renovate a real estate holding.
Hotel/Motel, Gas Station/ Car Wash, Industrial/ Warehouse Building, Apartment, Office Building, Grocery Store, Restaurant, Retail, Nursing Homes, Golf Course, Auto Related, Leased Tenant Improvements.
Any commercial/investment real property placed into service since January 1st, 1987 may benefit from a Cost Segregation Study (CSS):
Critical timing is when the property was placed into service by the current owner / taxpayer, not when the building was originally constructed.
•New construction, including renovation, remodeling, restoration, or expansion to an existing building
•Property acquired via purchase
•Property acquired via inheritance
•Property which received step-up in basis
•Major leasehold improvements
Certain types of buildings benefit from a CSS more than others. Those are the types of buildings that tend to contain:
•More specialty plumbing, electrical, HVAC system, etc.
•Higher amount and quality of personal property
•Extensive land improvements
Classification from real property to land improvements and personal property.
The building system value, referred to as the unit of property, or UOP, is the reference point from which capitalization decisions are applied. Under the new UOP definition, expenditures relating to each building system must be evaluated as repairs or improvements only with respect to that particular system and not with respect to the entire building.
Taking advantage of cost segregation studies to provide significant tax benefits for their businesses by accelerating the depreciation on qualified fixed assets.
By depreciating the personal property costs of such assets over five or seven years (and land improvements over 15 years instead of the typical 39-year recovery period for general building property), the additional deductions can be used to offset taxable income. This accelerated depreciation, in turn, provides additional cash flow.
Now, due to the favorable tax law changes in the IRS tangible property regulations, those potential savings are more valuable than ever to your company’s financial future. These new IRS tangible repair regulations give taxpayers a second reason to engage in a cost segregation study: the future. Rather than focusing on the benefit of current or previous year tax deferral as in past studies, cost segregation studies have now become a multi-use tool now that can help ensure that taxpayers are complying with the final repair regulations.
Each building and its structural components is a separate unit-of-property. In determining whether an expenditure is an improvement, the taxpayer must consider the effect of the expenditure on the building structure itself and on certain specifically defined components of the building (the "building systems"). Each of the following "building systems" is defined as a separate unit-of-property:
The ultimate result of the regulations is to reduce the size of the unit-of-property which increases the likelihood that an expenditure will need to be capitalized as an improvement. For example, if a taxpayer had an expenditure related to its building roof, the unit-of-property to use in determining if it is a capitalized improvement or a deductible repair is the building since the roof is not included in one of the separate building systems. For an expenditure to repair several of the building's rooftop air conditioner units, however, the appropriate unit-of-property to use in determining if it is a capitalized improvement or a deductible repair is the HVAC system (a smaller unit-of-property than the building) since the HVAC system is one of the specifically defined building systems.
Most taxpayers have previously treated the entire building as the unit-of-property. With the addition of these new regulations, most taxpayers that own buildings will need to make an accounting method change to adopt the new definition of unit-of-property as it relates to buildings.
Under the new tax law (effective as of 01/01/2018) non-structural assets installed to the interior of a building after the building is originally placed in service are considered Qualified Improvement Property, or QIP. The intent of the law these assets were supposed to be considered bonus depreciation eligible.
In most cases, renovation project improvements expands not only interior improvements, but also other building component systems such as exterior facades, HVAC systems, Elevators, Escalators, load bearing walls, etc. A cost segregation study may be necessary to break out the assets that are not QIP. Without an analysis to break apart the QIP from the remaining assets a taxpayer will not be able to maximize the bonus eligible property.
Additionally if a renovation is combined with an expansion, a study will be required to separate the assets included in the expansion from the assets in the original space. When a taxpayer completes a renovation a discussion should be had with a trusted professional to determine if a study is necessary to determine the amount of QIP.
The Tangible Property Regulations (also known as Repair Regulations) are the largest change to US Tax Law in 30 years and affect every building owner in America. The final regulations provide a general framework for distinguishing capital expenditures from supplies, repairs, maintenance, and other deductible business expenses. Building owners and their tax professionals now have strict guidelines as to what stays on a fixed asset schedule and what must come off. Not only must every building owner in America follow and apply these regulations to their accounting practices, but there may be a financial upside to doing so. Our Cost Segregation Study reviews the regulations to assist with compliance along with the financial benefit.
We provides the necessary calculations for business owners to apply the Tangible Property Regulations; this is coordinated with your tax professional.
When a taxpayer makes an improvement to a unit of property, the project often includes demolishing or removing a portion of the property. A write-down can be taken on the items removed from the building, but this must be done in the year the items were removed. We provide the calculation for Partial Asset Dispositions when business owners make improvements to their buildings.
A taxpayer who has made the Partial Asset Disposition election can also deduct the costs of a project associated with removing and disposing components of the building. This write-down would be done instead of capitalizing these costs with the improvement costs, but it also must be done in the year of the disposition deduction. We provide the calculation for Removal and Disposal Cost which occurs when improvements are made to buildings.
Have you replaced items in your building in the past? Replaced a roof or parts of a roof? Replaced HVAC equipment or completed entire renovation(s) to your building? The new Repair Regulations state that there be no “ghost assets” on your fixed asset schedule. Our Cost Segregation Study will find duplicate items that are currently being depreciated and identify them, along with their value, for a write-down. We provide an analysis for the calculations to be applied for historical capital assets that may now be reversed to expense.
The IRS has formally approved the ability to dispose of the remaining cost basis of assets previously retired, replaced, or demolished. This is outlined in the Tangible Property Regulations (IRC §1.168 (i)-8) and can be a tremendous vehicle for tax savings.
Our process includes a review of the existing depreciation schedules, demolition drawings, and other pertinent information. The team also assesses the scope of recently completed capital work to determine the potential for disposition. When this review identifies assets ripe for disposition—but does not warrant a Standard Cost Segregation Study—we suggest our Partial Asset Disposition (PAD) Analysis.
As defined in the Tangible Property Regulations, a PAD Analysis may be conducted in one of three ways:
The outcome of our PAD Analysis is a report that quantifies and presents the value of dispositions, outlines when the assets were placed into and taken out of service, and describes the asset(s) in question. With this information, the client may determine the remaining depreciable basis to support a Partial Asset Disposition election.
A PAD Analysis can also be used to update existing Unit of Property values.
Tangible Property Repair (TPR) Regulations
Taxpayers can realize significant benefits from the Tangible Property Repair (TPR) regulations by identifying building components that have been replaced or demolished in current or prior years and claiming retirement loss deductions. However, it is often difficult to determine the tax basis of each component without a cost segregation study. While the IRS agrees that a cost segregation study can be used for this purpose, they also allow the “PPI discounting approach” that our calculator utilizes. For more information on the IRS rules related to the PPI discounting approach, see T.D. 9689 Guidance Regarding Dispositions of Tangible Depreciable Property.
Purchase Price Allocation (PPAs) are required for every controlling transaction wherein the acquirer complies with Generally Accepted Accounting Principles (“GAAP”), with varying complexity based on the entities and/or assets involved in the transaction.
If the transaction does not meet the definition of a business, the transaction is accounted for as an asset acquisition.
► Allocate the cost of the acquisition to individual asset components acquired and liabilities assumed on a relative fair value basis as discussed in ASC 805-50-30-3
► Cost of the acquisition = purchase price plus direct acquisition costs
► Goodwill and bargain purchase gains are not recognized in asset acquisitions.
The buyer of an institutional multi-tenant office building or regional mall is not only purchasing the underlying land and the bricks & mortar, it is also acquiring all lease contracts in place, along with the various implications driven by those contracts.
As income-generating properties, the appropriate methodology varies to best reflect market participant application. As such, the property is typically valued on an as-vacant basis via the cost and income approaches. A cost approach is first modeled, which appropriately values the land and improvements with no consideration of leases in place.
The cost approach is supported by a ‘go-dark’ income analysis, which capitalizes the future income stream associated with the property, but under the hypothetical scenario of complete vacancy, so as to exclude any contribution from the leases in place (which are valued separately). The sales comparison approach is also employed, but primarily as
support to the Fair Value conclusion of the individual tangible and intangible assets
in aggregate. This is due to the leased fee nature of similar investment-grade
transactions, in which all real property assets are conveyed in one bundle or rights.
Use sales comparison approach, abstraction method or residual land capitalization approach.
-- Cost Approach: An informed purchaser would not pay more for a property than the cost of producing a substitute property with equal utility (MVS or construction comparables)
-- Income Approach, "Go Dark" Analysis
Utilize a discounted cash flow (DCF) model based on the assumption that the building is initially vacant and leased up over a period of time to stabilization
-- Land value and site improvement value are deducted from the value determined through the DCF to arrive at the building value
-- Reconcile the Income Approach and Cost Approach to determine a final value estimate for the building
-- Methodology: Cost Approach
Estimate the RCN for each site improvement and FF&E component via industry survey data or cost comparables and adjust the cost for depreciation (physical deterioration, functional and external obsolescence)
Physical deterioration is generally calculated using the age/life method (effective age/economic life)
-- Methodology: Cost Approach
Represents the value associated with "cost avoidance" of acquiring an in-place lease. Part of the market cost to execute a similar lease are costs related to tenant improvement allowances given as an inducement to rent the space. Other cost include leasing commission and legal/marketing expenses.
The values of tenant improvements and leasing commissions are estimated to be the market tenant improvement allowance and the market leasing commission, respectively, multiplied by the percentage of the original lease term remaining. )
Above/ below market lease(s)
Methodology: Income Approach
-- Discount the difference between the contract rent and market rent over the remaining term of each tenant's lease
-- Significant judgment exists with regard to the treatment of renewal options. Consider the following when assessing renewal options:
- Is the renewal within the control of the tenant?
- Does the renewal provide economic benefit to the tenant?
Above/ below market ground lease(s)
Legal/ marketing fees
Leases in-place (forgone rent)
Methodology: Income Approach
-- Represents the value related to the economic benefit for acquiring the property with in-place leases as opposed to a vacant property
-- Measured as the income (rent and expense reimbursement revenue) over the estimated amount of time that it would take to lease the space to stabilized occupancy.
-- The value of the Lease In-Place should not exceed the value of the remaining cash payments under the lease.
Methodology: Income Approach
-- Represents the PV of the NOI difference expected if a tenant renews their lease versus if they vacate and the owner is required to find a new tenant.
-- Tenant relationships are uncommon.
-- Estimated NOI difference is calculated as the sum of the following items multiplied by the renewal probability:
Monthly market rent expense recoveries at the end of the current lease term for the estimated months vacant before a new tenant is in place.
Difference in TI allowance required and leasing commissions paid at the end of the current lease term for a new tenant versus a renewal tenant
-- The expected NOI value is then discounted from the end of the current lease term to the acquisition date to estimate the current value of the tenant relationship.
Unamortized leasing commissions
Favorable purchase contracts
Above/ below market debt
PPA accounting guidance requires that notes payable and other long-term debt be assigned amounts “at present values of amounts to be paid, determined at appropriate current interest rates.” Therefore, if a mortgage is assumed in the acquisition of a property, there may be an intangible asset to the extent that the assumed mortgage features a below-market coupon. Likewise, assumed mortgage featuring above-market coupons represent an assumed liability to the buyer.
-- Methodology: Income Approach
- If property-level debt was assumed as part of the transaction, the debt should be fair valued in accordance with specific mortgage terms in relation to current market terms as of the acquisition date to determine if a favorable/ unfavorable condition exists.
Goodwill shall be recognized as of the acquisition date and measured as the excess of (1) over (b).
(a) The aggregate of the following:
-- The consideration transferred measured in accordance with ASC 805-30-30-1, which generally requires acquisition-date fair value.
-- The fair value of any non-controlling interest in the acquire
-- In a business combination achieved in stages, the acquisition-date fair value of the acquirer's previously held equity interest in the acquiree.
(b) The of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with ASC 805.
-- Bargain purchases occur if the acquisition-date amounts of the identifiable net assets acquired, excluding goodwill, exceed the sum of
(1) the value of consideration transferred
(2) the value of any non-controlling interest in the acquiree; and
(3) the fair value of any previously held equity interest in the acquiree
-- A bargain purchase should be recognized in earnings (profit or loss) and attributed to the acquirer
Order of testing for assets held and used
Impairment charges are recorded after each test above before moving to the subsequent test.
Not to mention on the current on-going Pandemics Catastrophe has had a major impact across both the real economy as well as in the financial and credit markets. With such uncertainty as to when the dislocations will resolve themselves, companies need to begin proactively assessing what this means for the value of their assets, with impairment considerations being a focal point. While analyst often focus on goodwill when considering impairment, it is equally important for companies to evaluate other assets that may be impaired such as:
Impairment testing is to be conducted at annual intervals. You may conduct the impairment test at any time of the year, provided that the test is conducted thereafter at the same time of the year. If the company is comprised of different reporting units, there is no need to test them all at the same time. It may be necessary to conduct more frequent impairment testing if there is an event that makes it more likely than not that the fair value of a reporting unit has been reduced below its carrying amount. Examples of triggering events are a lawsuit, the on-going pandemics catastrophe, restructuring reorganization, regulatory changes, the loss of key employees, and the expectation that a reporting unit will be sold.
The information used for an impairment test can be quite detailed. To improve the efficiency of the testing process, it is permissible to carry forward this information to the next year, as long as the following criteria have been met:
· There has been no significant change in the assets and liabilities comprising the reporting unit.
· There was a substantial excess of fair value over the carrying amount in the last impairment test.
· The likelihood of the fair value being less than the carrying amount is remote.
Non-amortizable intangibles are tested for impairment at least annually or when a triggering event occurs. Triggering events include but are not limited to the following:
It should be noted that there are other events not captured within these lists that may be considered as impairment triggers. Companies should be mindful of, and ready to identify, potential impairment indicators as they may occur at any time.
The impairment testing for indefinite-lived intangible assets is similar to goodwill impairment testing, as described below:
Step Zero: GAAP allows for a qualitative Step Zero test to be used in testing indefinite-lived intangible assets for impairment– just as with goodwill. Like Step Zero for goodwill impairment testing, this gives companies the option to bypass a valuation analysis and first assess certain qualitative factors to determine whether it is more likely than not (greater than 50% likelihood) that an indefinite-lived intangible asset is impaired. Impairment occurs when the fair value of an indefinite-lived intangible asset is less than its book value. If this analysis indicates that an indefinite-lived intangible asset may be impaired, the company must proceed with a fair value analysis.
Fair Value Analysis: A fair value analysis determines the fair value of the indefinite-lived intangible asset. If the fair value of the asset is lower than its book value, impairment is indicated and the asset is written down to its newly-determined fair value. It should be noted that indefinite-lived intangible assets are not written up if their value increases after initial recognition or if their value subsequently rebounds after an impairment has been recorded.
The accounting rules for finite-lived intangible asset impairment testing require a company to compare the undiscounted future cash flows associated with the asset to the asset’s net carrying value on the balance sheet. If the future undiscounted cash flows are greater than the net carrying value of the asset (which is most often the case), then there is no impairment. If the future undiscounted cash flows are less than the net carrying value of the asset, however, then impairment exists and those future cash flows are discounted back to the testing date to determine the new fair value of the asset and an impairment charge is recorded to write down the asset to its fair value. Because finite-lived intangible assets are amortized, they decrease in value on a company’s balance sheet each year. As a result, GAAP allows companies to consider the undiscounted future cash flows associated with finite-lived intangibles in testing for impairment, which makes it much less likely that they will be deemed impaired.
ASC 360 (formerly SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets, governs the accounting treatment of finite-lived assets. As in ASC 350, a two-step test is required to evaluate goodwill impairment. However, unlike ASC 350, the initial test entails the utilization of undiscounted cash flows associated with the finite-lived asset. An impairment loss is recognized only if the carrying value of the asset is not recoverable and exceeds its fair value. The carrying value is considered unrecoverable if it exceeds the sum of the undiscounted cash flows anticipated from the use and disposition of the asset. Impairment loss is measured as the amount by which the carrying value of an asset exceeds its fair value.
Historically, accounting for business combinations has been one of the most controversial issues in financial reporting. With the rapid pace of change in today’s marketplace-driven by technological advances, new business models and other factors-the role of financial reporting in maintaining stability of capital markets will only increase. ASC 805 and 350 address critical issues of currency and accuracy in financial reporting.
The Securities & Exchange Commission continues to scrutinize the new subjective valuations arising from ASC 805 and 350, and the agency continues to pay particularly close attention to how those valuations are incorporated in purchase price allocations for mergers and acquisitions. That being the case, it is critical that companies hire a reputable firm to provide expert valuations and goodwill impairment opinions under these accounting rules.
Purchase Price Allocation is the process of allocating the Purchase Price Paid for Acquired Company to its Tangible Assets, Intangible Assets, and Assumed Liabilities.
Real Property: Land, Land Improvements, Buildings, Leasehold Interests
Personal Property and Related Assets: Machinery and equipment, Furniture and fixtures, Computer equipment, Vehicles, Construction in progress, Leasehold improvements
Intangible Assets: Trademarks, Patented and unpatented technology, Internal-use software, Customer relationships, Favorable supply agreements, Noncompete agreements, Licensing agreements
Liabilities: Deferred revenue, Contingent considerations, Contingent liabilities
Purchase price allocations performed for US tax purposes are done under the standard of fair market value, which is similar to fair value, but which also may differ in certain cases. IRS Section 1060 and Regulation under IRC Section 338 further identify the following seven classes of assets for tax purposes:
Class 1 Cash
Class 2 Marketable Securities
Class 3 Market-to-Market Assets and Accounts Receivable
Class 4 Inventory
Class 5 Assets not Otherwise Classified C
lass 6 Section 197 (intangible) Assets other than
Class 7 Assets Class 7 Goodwill and Residual Going Concern Value
These classifications are extremely important if a company is contemplating a like-kind exchange, a tax-free exchange of stock, or other corporate tax planning transactions.
Financial Reporting: ASC 805, Formerly SFAS 141r and 142
•It accurately reflect Components of a Company's Worth
•Most Intangible Assets are Amortized over their expected lives; This Expense can have a major impact on reported earnings
•Determine purchase price and total asset base
•Identify components of total asset base including tangible assets, intangible assets, and remainder as goodwill
•Allocate Value to Company's Asset Components - Ultimately to the Intangible Asset Valuation
•Identification is dictated by Industry
•Trademarks/names •Customer contracts & relationships
•Databases such as customer mailing lists
•In-process Research and Development ("IPRD")
Classifications into Categories:
•Intangible Assets Separable from Goodwill
•Intangible Assets Not Separable from Goodwill
Five Categories of Intellectual Property & Intangible Assets
•Marketing-related: Trademarks, trade/brand names, service marks, logos and non-compete agreements
•Customer-related: Customer contracts and relationships, customer lists, databases, open purchase orders, distributors and sales routes
•Contract-based: Franchise and licensing agreements, permits and contracts and supplier contracts
•Technology-based: Process and product patents, patent applications, proprietary processes and technology, engineering drawings, technical documentation, computer software and copyrights, formulas and recipes
•Artistic-related: Musical composition, literary composition and film copyrights
Among the various types of intangible assets/Intellectual Property to which we have assigned value are:
•Patent Valuation, copyrights and licenses
•Customer lists and relationships
•Trained and assembled workforces
•Unpatented proprietary technology
•Databases Trademark Valuation, trade names
Intangible assets such as brands, intellectual property and licenses now comprise a greater percentage of the economic value of successful businesses than ever before. Some economists argue that intangibles represent the main performance drivers in the current transition from a traditional financial economic structure to a new knowledge-based economy.
The value of identifiable intangible assets are important to: - Shareholders and their advisors, for use in assessing the true worth of their companies Management, as a useful tool for measuring performance, for taxation purposes and in the event of an acquisition or disposal under ASC 805 (formerly SFAS 141). - Financiers, for use in assessing the borrowing capacity of a company when arranging funding facilities. Sophisticated lending institutions now recognize the value of certain intangible assets as security for loans.
Research and development can be one of a company's most significant and important investments. It sparks innovation, drives technological advancement, energizes product development and promotes efficiency improvements. Because of this, companies seek legal protection of the resulting ideas and processes in the form of patents. A patent grants the assignee exclusive right to the invention for a specified period of time. Like other intangible assets, it is sometimes necessary to obtain patent valuations. Our business valuation team examines the value of intangible assets every day and understands the key factors that impact the value of a patent.
Patent valuations are needed for a variety of matters including to support transfer of ownership (licensing or assignment) of the business or patent, collateralized financing, financial reporting and taxation matters. A valuation of patents may also be needed to support litigation matters, such as quantifying patent infringement damage.
To select the appropriate methodology, we first seek to understand the use of patent valuations. This context is important because the approaches to value can result in very different value conclusions.
Our valuation team is comprised of certified and designated experts, some with over 30 years of experience, in the industry who service both national and international market segments. This level of experience allows us to consistently provide our clients with exceptional customer service. Along with a solid and honest work ethic, we provide a superior product always compliant with the standards and guidelines of USPAP. Their experience qualifies us to meet the requirements of the Appraisal Foundation, Internal Revenue Service, Lending Institutions and Courts of Law around the country. We work with companies of all sizes, tailoring our expertise to their individual needs.
A business valuation or appraisal is the independent and unbiased process of determining a supportable opinion of the value of a business, business ownership interest, security or intangible asset as of a specified date.
Our valuations are performed by qualified, professional appraisers experienced in all aspects of business valuation and business transfers. Our valuations are performed in compliance with the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation (USPAP) as well as the Business Appraisal Standards of the Institute of Business Appraisers. Compliance with industry standards ensures that proven peer-reviewed valuation methods are used to develop defendable opinions of value. Through participation in teleconferences and annual valuation conferences, our appraisers stay abreast of developing valuation issues and related court cases.
Sooner of later every business owner needs a reliable company valuation for one or more of a variety of reasons:
•Mergers & Acquisitions •Allocation of Purchase Price (Purchase Price Allocation)
•Business Sale •Financing •Shareholder Agreement •Shareholder Disputes •Divorce •ESOPs •Estate Planning •Insurance Claims •Gift Taxes •Litigation •Partnership Buyout •"C" Corp. to "S" Corp. conversion
•Market Methods - utilizes several different databases of market comps including Pratt Stats, Institute of Business Appraiser’s, Bizcomps, Business Broker’s of Florida, and the MidMarketComps database. Multiples of discretionary earnings are used as well as other cash flow multiples. When applicable, sophisticated statistical techniques such as data modeling and linear regression analysis are also used with the market method to provide superior results.
•Income Approach - Single Period Capitalization Method or Multiple Period Capitalization Method (DCF Model)
•Adjusted Book Value Method with Excess Earnings
•Public Company Guideline Method - used for larger companies
•Analysis of prior sales of stock of the company
If you are unsure about which report is right for your company, call today to speak to one of our Business Valuation Consultants and they will review which report is right for you and your company based on the specific needs of your company.
Business/Asset Valuations for Financing - Increasingly, lenders require an independent business valuation prior to approving a business loan or a credit line.
Sale of a Company - Determining the value of a business is the first step in the process of selling a business. A formal valuation performed by an experienced business appraiser will determine the fair market value of your company. A valuation will prepare you to respond to buyer concerns by addressing your company’s value and risk drivers. It will also identify sources of value and areas of your business that can be improved. In addition, knowing the fair market value of your business will prepare you to be a better negotiator.
Exit Strategy Planning - Most business owners do not plan ahead for the time when they will decide to sell their business. Often when they make up their mind to sell, the business isn’t worth what they had hoped; or isn't even be marketable. Don’t wait until a few months before you plan to retire to find out whether or not your company is marketable at a price acceptable to you. Nationally, only 20% of small to medium sized companies listed for sale actually sell. You don’t want to be part of the other 80%. Unfortunately, ownership transfers are not always voluntary. Often, an unforeseen event, such as the owner’s death, forces the transfer of ownership. Your business planning should begin well in advance of your planned exit from the business; and, it should address both voluntary and involuntary transfers. Your planning should actually begin on day one! A formal valuation with annual updates should be one of the most important tools and an integral part of on-going strategic planning and/or exit strategy planning. Don’t leave your spouse or heirs in the position of having to make the biggest business/financial decision of their lives (i.e., the transfer of your ownership interest) without accurate information as to the fair market value of your ownership interest.
Buy/Sell Agreements - If your business has more than one shareholder, a valuation is required to establish fair market value of the business to determine equity distribution when specified “trigger events” occur. Also, the valuation enables life insurance requirements (funding mechanism for your buy-sell agreement) to be more accurately determined and updated as required.
Employee Stock Ownership Plan - There are numerous financial and tax reporting situations that require qualified, independent valuation services. Examples include when the company issues stock options or transfers or sells equity interests. A valuation is required for the company to properly report related compensation expense; and, for the recipients to accurately report income.
Litigation Support - A business valuation is often needed to establish economic damages in commercial litigation proceedings; or, to determine equitable distributions in shareholder disputes. Insurance Purposes – Increasingly, insurance companies require appraisals be done on equipment and/or businesses that are insured.
Intellectual Property Valuation - In today's increasingly complex and highly regulated business environment, the accurate and complete valuation of intellectual property is essential. Foreclosures – A machinery and equipment appraisal or business valuation is almost always necessary during a foreclosure of a business to determine the fair market value of all assets.
Divorce/Estate Settlements - A business is typically the largest joint marital asset and the most difficult to value. A business valuation will either be court appointed or voluntarily engaged, to facilitate an equitable distribution settlement.
Mergers & Acquisitions Valuation
•Financial Value, Synergy Value, After Integregation Value •Purchase Price Allocation (Business Combinations Valuation, 141r) •Fairness Opinions/ Solvency Opinions •Distressed Acquisitions Valuation
Shareholder Liquidity Services
•Valuations for Sale of Business or Division •Valuations for Sales of Stock to an ESOP •Valuations for Life Insurance Funding •Valuations for Minority Shareholder Stock Repurchases
Bankruptcy & Restructuring Valuations for
•Insolvency •Reorganization •Distressed Sales •Fresh Start Accounting - Business Combinations •Orderly Liquidation Value •Forced Liquidation Value •Going-Concern Value •Reorganization Value
Corporate Transaction Services
•Valuation for Purchase or Sale of Business or Division •Valuations of Incentive Stock Options - IRC 409a •Fairness Opinions •Establishing Merger Exchange Ratios •Going Public/Going Private Transactions
Intellectual Property Services
•Royalty Rate Studies •Technology Transfer Valuations (Section 482 Transfer Pricing) •Valuations for Sale/Licensing of Intellectual Property
Tax Related Services
•Estate and Gift Tax Appraisals •Appraisals for Charitable Donations of Closely Held Securities •Analysis of Minority Interest, Marketability, Blockage and Other Discounts •Valuation of Restricted Stock •Appraisals of Intangible Assets •Appraisals of Intellectual Property •Valuations for Section 482 Transfers (Transfer Pricing) •Valuations for S Corporation Election •Valuations of Family Limited Partnerships and LLCs •Valuations of Contingent Purchase Prices
•Fair Value Measurement •Goodwill Impairment - FASB SFAS 142 & 144 •Valuations of Stock Options •Purchase Price Allocations - FASB SFAS 141R & 157 •Cheap Stock Valuations •In-process Research & Development Valuations Employee Stock Ownership Plans •Annual Appraisals for Plan Trustees •Fairness Opinions in ESOP Transactions