Your Business Matters AlexanderAbramson.com • (407) 649-7777 September 2019
ELEVATIONS AND VALUATIONS
The Wild World of Appraisals
As I sit down to write this newsletter, I’m in the middle of packing for a weeklong excursion up to Balsam Mountain in North Carolina. There you’ll find one of the last old-growth forests on the East Coast, which dates all the way back to the last ice age. As fun as it would be to mail this out last minute to share the experience with you, I probably wouldn’t be able to find a post office in the middle of the Great Smoky Mountains. So, this month, let's talk about something equally fun: business valuation! I’m only half kidding. Recently, I’ve taken the two courses I needed to become a Certified Business Intermediary (CBI). Earning this prestigious designation meant finely honing my skills as a business lawyer and deepening my knowledge in fields that overlap my own. For example, these last two courses really strengthened my ability to represent clients who wish to buy or sell a business. These courses revolved around valuing businesses, which may not be as exciting as exploring the woods of ancient North America, but they were enlightening. When representing either side of such a major transaction, a lawyer needs to be able to think like an appraiser. I want to be there to check the math and raise red flags intelligently. Plenty of appraisers will try to take you for a ride — being a CBI
lets me shut them down before any agreements are signed. It’s just one more way I can protect your interests from greedy or incompetent parties. It’s this kind of advantageous knowledge that makes these seminars so worthwhile for me. As much as one can discover in the Appalachian wilderness, you won’t find the secrets to a fair valuation hidden amongst the dogwood flowers. I learned plenty from my journey into the nitty-gritty of valuations, but here’s a lesson you can apply to your own business: There is such a thing as being too aggressive when it comes to tax management. Before you accuse me of blasphemy, let me explain. A lot of the techniques businesses use to pay the absolute been understating your cash flow for years, your company won’t look very profitable when it’s time to sell. You’ll get a much lower offer from the buyer, and most banks will refuse to lend on the transaction. Thus, many business owners wind up in this double bind where they have to finance their own sale, often at a lower sale price than they’d like. “But Ed,” says the devil's advocate, “I have years before I’m going to be ready to sell my business. Why pay more in taxes right now?” To those who minimum to the IRS also end up negatively affecting their own valuation. For example, if you’ve
make this argument, I can only say that I envy your ability to see the future. If 25 years in this industry has taught me anything, it’s that few business owners sell when they thought they would. Unforeseen circumstances happen all the time that push business owners to sell sooner than expected. Writing that last sentence reminded me to pack my first-aid kit for my camping trip. Yes, it’s extra weight I’ll have to lug around, and I probably won’t need it. But much like a good presale strategy, if I find myself in an emergency, it will be well worth the hassle.
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