Business Valuation

Marital Dissolution

Valuation of businesses and ownership interests, including analysis of personal and enterprise goodwill, compensation, distributions, and other economic benefits.

Gift and Estate Tax Planning and Compliance

Valuation of interests transferred during life or included in a decedent’s estate, generally under the applicable fair market value standard.

Mergers, Acquisitions, and Other Transactions

Valuation of businesses and ownership interests in connection with acquisitions, sales, recapitalizations, and other transactions. We may assist buyers, sellers, and their advisors in evaluating the value of a business or ownership interest and the financial assumptions underlying a contemplated transaction. See our M&A support services.

Shareholder and Partner Disputes

Valuation of ownership interests in matters involving buyouts, oppression claims, contractual rights, fiduciary issues, or disputed transactions.

Business Succession and Buy-Sell Matters

Valuation assistance relating to ownership transitions, internal purchases, succession planning, and governing agreements.

Commercial Litigation

Valuation and financial analysis in connection with contractual disputes, economic damages, contested transactions, and other commercial matters.

Two of these have pages of their own: business valuation in divorce and shareholder valuation disputes.

Every business valuation is performed under an applicable standard of value, premise of value, and valuation date, each of which can significantly affect the analysis and the resulting conclusion. These elements are generally established by the purpose of the engagement, the governing legal or regulatory framework, or the terms of a relevant agreement, rather than selected by the valuation analyst.

Standard of Value

The standard of value defines the type of value being estimated. Fair market value, the price at which a business would change hands between a hypothetical willing buyer and willing seller, each having reasonable knowledge of the relevant facts and neither being under compulsion to buy or sell, is the standard commonly applied in gift and estate tax matters and many other engagements. Other engagements may call for fair value, investment value, or another applicable standard, depending on the governing statute, case law, or agreement.

Premise of Value

The premise of value reflects the assumed circumstances under which the business is valued, most commonly value as a going concern, reflecting continued operation of the business as an established enterprise, or value in an orderly or forced liquidation, reflecting sale of the company's assets. The appropriate premise depends on the facts of the engagement, including the company's financial condition, industry conditions, and prospects.

Valuation Date

The valuation date establishes the point in time as of which the business is valued and determines the information, market conditions, and events relevant to the analysis. The valuation date is generally established by the purpose of the engagement, applicable law, or the terms of a governing agreement, and information arising after that date is generally considered only to the extent it was known or reasonably knowable as of the valuation date.

The value of a business as a whole is not necessarily the same as the value of a specific ownership interest in that business. The applicable level of value depends on the size of the interest being valued and the rights and restrictions associated with it.

Control and Marketability

An ownership interest may reflect a controlling or non-controlling level of value, depending on rights such as voting and management control, the ability to direct distributions or compensation, and the ability to cause a sale, merger, recapitalization, or liquidation of the company. An interest may also reflect a marketable or non-marketable level of value, depending on the ease and cost with which it could be converted to cash.

Valuation Discounts and Premiums

Where permitted under the applicable standard of value and legal framework, adjustments such as discounts for lack of control (DLOC), discounts for lack of marketability (DLOM), or control premiums may be applied to reflect the specific characteristics of the interest being valued. Support for these adjustments may be drawn from empirical studies, transaction data, and the specific facts of the subject interest, including its ownership percentage, governance and distribution rights, transfer restrictions, and expected holding period.

1. Define the Assignment

   We identify the subject business or ownership interest, valuation date, purpose, applicable standard and premise of value, level of value, and scope of the analysis.

2. Review the Available Information

   We review relevant financial statements, tax returns, general ledgers, ownership and governing documents, forecasts, transaction records, industry information, and other materials appropriate to the assignment.

3. Understand the Business

   When appropriate, we interview management or other knowledgeable individuals regarding the company’s history, operations, customers, workforce, compensation practices, risks, and expected performance. Material representations and their sources are identified rather than presented as independently verified facts.

4. Analyze Financial Performance

   We analyze historical and expected financial performance, operating trends, margins, working-capital requirements, customer and supplier concentrations, capital expenditures, and other factors affecting risk and economic returns.

5. Evaluate Normalizing Adjustments

   Reported financial results may require adjustment to better reflect the economic earnings relevant to the valuation. Adjustments may relate to nonrecurring items, discretionary owner expenses, above- or below-market compensation, related-party transactions, nonoperating assets or liabilities, and unusual or unsupported items.

6. Apply Appropriate Valuation Methods

   Depending on the available evidence and applicable standard of value, we may consider methods under the income, market, and asset approaches, together with analyses of reasonable compensation, ownership and control characteristics, marketability, and personal versus enterprise goodwill where relevant.

The appropriate valuation approach depends on the nature of the business, its financial characteristics, the available information, and the purpose of the engagement. Depending on these factors, the analysis may consider the income, market, and asset approaches to value, individually or in combination.

Income Approach

The income approach estimates value based on the future economic benefits expected to be generated by the business, most commonly through the discounted cash flow method or the capitalization of earnings or cash flow method. The analysis considers normalized earnings, expected growth, working-capital and capital-expenditure requirements, and the risks associated with achieving projected performance.

Market Approach

The market approach estimates value using pricing information from guideline companies, whether comparable publicly traded companies or completed transactions involving similar businesses. The reliability of this approach depends on the comparability of the available market data, including differences in size, profitability, growth prospects, and risk relative to the subject company.

Asset Approach

The asset approach estimates value based on the company's underlying assets and liabilities, adjusted to reflect their fair market value or another applicable basis. This approach may be particularly relevant for holding companies, asset-intensive businesses, or companies whose value is not primarily derived from ongoing earnings.

Goodwill can represent a significant component of value in closely held businesses and professional practices, particularly where the business depends heavily on the reputation, relationships, skills, or efforts of an individual owner. Some jurisdictions and valuation contexts distinguish between enterprise and personal goodwill, and the legal treatment of that distinction varies.

Enterprise goodwill generally refers to goodwill associated with the business itself that may reasonably be expected to continue independent of a particular individual, such as an established trade name, customer base, assembled workforce, and business systems. Personal goodwill generally refers to value attributable to an individual's reputation, relationships, skills, or personal efforts, which may not transfer to a new owner.

Where the distinction is relevant, our analysis considers factors such as the business's dependence on a particular individual, the depth and transferability of customer and referral relationships, management and workforce depth, the existence of non-compete or employment agreements, and the extent to which the business's processes and systems are documented and independent of any one person.

Our reports identify the assignment, information reviewed, procedures performed, methods considered and applied, significant assumptions, adjustments, and the basis for the concluded value.

Business valuation assignments may be performed as a valuation engagement, in which we determine the approaches, methods, and procedures necessary to develop a conclusion of value, or as a calculation engagement, in which we and the client agree on specific procedures to be performed and the result is expressed as a calculated value rather than a conclusion of value. The appropriate engagement depends on the purpose of the valuation, its intended use, and any applicable professional, tax, regulatory, or court requirements.

Depending on the reporting requirements applicable to the engagement, our conclusions may be communicated through a detailed report, which provides a comprehensive explanation of the analysis and its basis, or a summary report, which presents the same conclusion in more condensed form.

A valuation opinion reflects the information known or reasonably available (knowable) as of the valuation date. It is not a guarantee of a future transaction price, which may be affected by negotiated terms, financing, buyer-specific considerations, synergies, and events occurring after the valuation date.

The engagement types and the reporting formats available are described in types of business valuation reports.

Our valuation professionals perform engagements in accordance with the professional standards applicable to the assignment and their respective credentials and professional memberships, including standards issued by bodies such as the American Institute of Certified Public Accountants (AICPA), the American Society of Appraisers (ASA), the National Association of Certified Valuators and Analysts (NACVA), or other authoritative professional standards. These standards establish requirements governing the development of the analysis and the form and content of the resulting report, and may include specific provisions or exemptions applicable to certain litigation or controversy proceedings.

Business valuations prepared in connection with litigation, disputes, or other adversarial proceedings may be reviewed by counsel, opposing experts, and the court. In these engagements, we may serve as a consulting or testifying expert, assisting counsel with financial discovery, document requests, and analysis of the financial and valuation issues in the matter.

Where another expert has prepared a valuation, we evaluate the assumptions, methodologies, financial adjustments, and supporting evidence underlying that analysis. Areas of review commonly include normalized earnings, projections, the valuation approaches and methods applied, discount and capitalization rates, market evidence, and the treatment of goodwill, control, and marketability, where applicable.

Valuation experts may reach different conclusions based on differences in professional judgment, assumptions, methodologies, or interpretation of the available evidence. We independently evaluate those differences and assess whether an analysis is supported by the relevant financial and market evidence and the applicable valuation framework, and we provide deposition and trial testimony when required.

That work, including deposition and trial testimony, is described further under litigation support.

Whether the matter involves gift and estate tax planning, a shareholder or partner dispute, a business transaction, marital dissolution, or another matter requiring an independent valuation, Insight Forensic & Valuation Services can assist. Contact our team to discuss a business valuation engagement and the standard of value, scope, and reporting format appropriate to your matter.