Valuation Services

Valuations are a critical component of successful tax planning strategies. Estate planning is the process of developing and coordinating the transfer of an individual’s property to designated beneficiaries with particular focus on the tax and business impact of that transfer.  The most successful estate and succession plans are designed by a team of specialized professionals, and the valuation of the business is often one of the first steps.

The scope of the valuation will vary, depending on the stage of the planning process. An estimate of value might be more appropriate in the initial attempt of organizing and evaluating the overall ownership of assets.  At the stage of wealth transfer, however, the scope of the valuation should result in a report that is well-reasoned and documented in order to support any potential challenge.

Partnering with an experienced business appraiser can also help ensure that the gift transfer is “adequately disclosed” in accordance with the strict IRS regulations that start the clock on the safe harbor rule limiting the time in which the value of the transfer can be examined.

A Family Limited Partnership (FLP) is a limited partnership where most or all of the partners are family members. One benefit of using a Family Limited Partnership as an estate planning vehicle is the ability of senior family members to retain control of the management of the Family Limited Partnership and the money generated by it.

From an estate planning point of view, one of the most attractive aspects of using a Family Limited Partnership is the availability of valuation adjustments or discounts to reduce the value of limited partnership interests that are gifted to family members or trusts for the benefit of family members.

An example of such a value adjustment is the lack of marketability discount created by the presence of severe limitations in the marketability of closely-held shares.  The business appraiser must examine the specifics of the interest being transferred, the partnership, its performance and the degree to which that performance is returned to partners in terms of distributions in order to determine the applicability of discounts and/or the size of those discounts.  This examination is critical, because if discounts are too low, they will substantially reduce the estate planning benefits.  However, if the discounts are inappropriately high, the investor runs a significant risk of incurring large amounts of back taxes and penalties to the IRS, as well as incurring legal and accounting fees.

Stockholder disputes can arise from many different circumstances.  In general, they arise when the minority shareholder feels that their rights have been violated or have been otherwise treated unfairly.  In such cases, the minority shareholder may seek to have the business appraised prior to adverse decisions by the majority shareholder.

A buy-sell agreement is a binding arrangement between co-owners of a business that governs how a partial business owner can transfer an interest in a fair and equitable manner. Karlsons & Associates can execute the valuation requirements of a buy-sell agreement, providing business valuation analysis to assist in pricing the ownership transition.

We can also assist the legal team in crafting the buy-sell agreement so that the document is worded clearly to avoid valuation ambiguity. This often includes establishing a standard value that properly reflects the intent of the parties under agreement.

Incentive plans based on business value can link performance of key employees to the value they create for the business. We can work with your legal advisor to create an incentive plan that establishes measurements to parallel growth in the value of the business without having to distribute closely-held shares of stock or otherwise share the ownership of the business to reward a key employees.

ASC Topic 805 (formerly SFAS 141 and 141R) specifies the methods to be used to allocate purchase price to all assets acquired in a business combination or acquisition.  Examples of tangible assets include machinery and equipment and real estate, examples of intangible assets include customers, technology, trade names, intellectual property and goodwill.

Under ASC Topic 805, the fair value of the business interest (or assets) acquired is determined, and the fair value of the consideration paid in the acquisition is allocated to the identifiable tangible and intangible assets acquired. In some cases the valuation of contingent consideration is required as part of this analysis.

Under ASC Topic 350 (formerly SFAS 142) goodwill and indefinite lived intangible assets must be periodically tested for impairment using a two-step process to test and measure impairment of goodwill.  The testing must be conducted at the reporting unit level (the lowest level of the entity).

Fair value measurements can be complex, and management will often engage an independent valuation firm to perform these measurements, particularly when an independent opinion is required.

For emerging growth companies that are setting their stock option strike prices or valuing the options themselves, Karlsons & Associates LLC provides independent valuation opinions.  These include high-growth, early-stage firms, including bio-tech.  We also develop option-based valuations for more established businesses as they approach various liquidity events, including potential IPO’s.

A major characteristic of an intangible asset is the high degree of uncertainty concerning the future benefits to be received from its employment.  Companies require intellectual property valuation for numerous reasons, including transaction strategy (when considering buying, selling or transferring the asset in a licensing arrangement or acquisition), and financial reporting purposes as well as to secure financing.

When valuing intangible assets, the conclusion of value will be based in one form or another on the cash flow this property could reasonably be expected to produce in the future and the risk associated with that projected cash steam.