Business Appraisal / Cash Flow Analysis

What is a business worth, and how much cash is really available to the owner? These are complex questions which are most often decided with the assistance of "expert testimony". Usually the expert would be an Accountant, many of whom testify only regarding business values.

These reports usually also include an analysis of cash flow which is relevant to how much support a person can pay or should receive. Examples of problem areas are is a business expense really a personal expense? Or, should the court consider a paper loss, say depreciation, as a deduction. It may be appropriate for taxes, but it may not be when determining the amount of support. It’s been said that the oldest trick in the book is to "put the girlfriend on the payroll."

There are several methods for valuing a business. Capitalization of excess earnings, comparable sales, and references to buy / sell agreements are but a few. Generally, the methods comport with the IRS valuation guidelines set forth at Rev. Rul. 59-60. Obviously a discussion of the fine points of a business valuation is too much to include in this brief introduction, but suffice it to say the valuation is usually the subject of "expert testimony" and hotly contested. This of course is where experience is the key.

Who should the expert be, should he be used by both parties, who should pay for it, and as of what date should the business be valued are all questions your attorney should be exploring and preparing for. Although the law requires an asset to be valued as of the date of trial, there are exceptions. For example: Assume the managing spouse "runs a business into the ground" after separation in the hope the business will be worth nothing at the time of trial. Or, conversely, assume the managing spouse does nothing but work at the business after separation and it’s worth a lot more at the time of trial than it was when the parties were together. In either case, upon request, the court can set a different valuation date - say at the date of separation - but the request must be made well in advance.

Obviously expert legal advice is mandatory under these circumstances. Our office has long standing relationships with business appraisers of many types, and is consistently cultivating relationships with new ones. Scott Decker C.P.A, Wayne Lorch, C.P.A., Bill Passiage, C.P.A., Tom Tone, C.P.A., and Don Pyne, C.P.A., are but a few local professionals we have worked with over the years. Call us for a free consultation regarding your needs in this area.

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