by Greg Caruso | Mar 18, 2025 | ESOP Business Valuation, Estate and Gift Tax Business Valuation, SBA Business Valuation and Appraisal
Running a business during uncertain times can be challenging, but it’s not impossible. Changes in the economy, politics, unexpected events, and new technologies can make planning and successful operations hard. However, businesses that stay flexible and adapt quickly have a better chance of surviving and growing. To do this, business owners must be ready to change their plans and respond to new situations rapidly.
One key strategy is to review and adjust business plans regularly. This includes thinking out contingency plans for unexpected but possible change. Markets and customer needs can shift quickly, so businesses must keep an eye on trends and be ready to pivot (and you thought pivot ended with Covid) when needed. Being open to change allows companies to take advantage of new opportunities while limiting potential risks. Staying informed and making small adjustments over time can help businesses remain stable and competitive.
Another important factor is building a strong foundation. This means planning, building your balance sheet to survive emergencies, and ensuring business operations can continue even when problems arise. Building a management team that works together provides resilience and internal forums for problem-solving. Companies should also have a variety of suppliers and customers to avoid concentrations that increase risk and can quickly put a firm out of business. Planning can help companies to stay strong, even when unexpected challenges occur.
Finally, good leadership is crucial during uncertain times. Business owners and managers should communicate openly with their teams and encourage problem-solving. Employees who feel supported and valued are more likely to stay motivated and help the company succeed. Leaders should also take care of themselves, as making good decisions under pressure requires a clear mind.
With the right mindset and approach, businesses can not only survive tough times but come out stronger.
by Greg Caruso | Feb 22, 2025 | ESOP Business Valuation, Estate and Gift Tax Business Valuation, SBA Business Valuation and Appraisal
You need a business valuation or a business appraisal. You might need the business valuation for Estate and Gift business taxes, applying for an SBA loan, ESOP stock value, or a host of other reasons. How can you make sure that you obtain the most accurate business valuation possible?
The business valuation is going to tell a story about your business. This story will contain a narrative backed up by statistics, facts, and figures. This story must make sense when it is complete. Your job as a business owner obtaining a valuation is to make sure the story, facts, and figures are clear and sensible to the experienced valuation professional appraising the business.
Below are 5 steps business owners should take to make sure your business valuation is as accurate as possible.
THE 5 STEPS
- Be able to explain why your product or service is so desirable you can continue to make a high profit
The most important thing in valuing your business is understanding how you create and keep a market of customers that will pay enough for your product or service that you can be expected to continue making a profit. Do you have patents keeping others out? Do you have a unique distribution channel? Do you have better internal systems and people? This is the core of the business valuation. How your business makes money and how it will continue to do so. The ability to clearly and succinctly explain that is key to the valuer understanding your business and getting the valuation correct.
- Have quality financial information.
You must have quality financial information. A business valuation is, to a large extent, a review of your past financial results and a projection of your future financial expectations. Without clear data it is very difficult to see the details necessary to make correct assumptions and calculations. In addition to historic financial information, business plans and useful projections consistently kept will add to the valuer’s understanding of the business.
- Have leases and major contracts in good order
Leases, customer contracts, loan documents, and the like may not make a business, but if they are not in good order a business may suffer major losses quickly. These documents in good form reduce risk which increases value. Have the major legal documents your business relies on updated and accessible, so you can provide them when asked.
- Have systems outlined and resumes of key people
Simply put, a business is a series of systems that produce a product or service, hopefully at a profit. Most businesses have many systems that are run by people. True high-quality systems are where “normal people obtain extraordinary results every time.” This requires great systems, great training, and very good people. Make sure you can document all of these.
- Hire an experienced valuation professional.
Clearly, the valuer must have the background to understand how actual businesses on the ground work and how that translates into value. Business valuations are performed for specific purposes – sales, SBA loans, ESOP structuring, divorce, Estate and Gift Tax. While it might sound crazy, it is a fact that the purpose can often significantly change the correct business value found. Make sure the valuer understands and has performed valuations for your purpose. Finally, make sure they have sufficient background and training in the fundamentals of business valuation.
These five steps lead to a consistent well-run business and obtaining a correct business valuation. Business valuation does have an element of the old saying, “garbage in – garbage out.” As a business owner you do play an important role in obtaining a proper business valuation.
by Greg Caruso | Jan 21, 2025 | Estate and Gift Tax Business Valuation
The recent Supreme Court case, United States v. Connelly, has significant implications for businesses and their estate tax planning. The Court ruled that life insurance proceeds held by a company must be included in its valuation for estate tax purposes, even if those proceeds are earmarked for a stock redemption.
Imagine it this way: You have a house, and you have homeowner’s insurance that covers the replacement cost of the house. A similar ruling by the court would say the value of that insurance policy itself adds to the overall value of your house for tax purposes, even though it’s there to protect you, not increase your property value. We can all be relieved this is not currently true.
This ruling, however, is a game-changer for businesses. It means that life insurance policies held by a company are no longer considered “off the books” when it comes to taxes. So, businesses need to get creative to avoid a hefty tax bill down the road. It’s super important for owners and their advisors to review their buy-sell agreements and estate plans to make sure they’re still set up to minimize tax liabilities.
The good news? There are ways to work around this.
- Different insurance setups: Instead of the company holding the insurance, owners can buy policies on each other, which can keep those payouts out of the company’s valuation.
- Trusts: Putting insurance policies in a trust can also help keep them separate from the company’s assets.
Read More in Greg’s article for NACVA QuickRead: Valuation Lessons from Connelly v. United States
by Greg Caruso | Aug 10, 2021 | Exit Planning Business Valuation & Growing Business Value
Here at Art of Business Valuation, Harvest Business, LCC, we evaluate businesses for a variety of reasons, including Small Business Administration (SBA) loans and Estate and Gift Tax planning. Here is a brief summary of a three recent business valuations by the business valuation firm done by Gregory Caruso, JD, CPA, CVA, lead appraiser.
Estate and Gift Tax: Home Nursing / Eldercare Business Valuation
The business is a franchise of home nursing and eldercare company with several locations. The company had good relations with several hospital systems, which make constant referrals, driving new customers to the business. On the personnel front, the two owners and three strong upper middle managers made a good management team. They ensure consistent timely staffing and care. At this time they needed an evaluation because one owner wanted to gift his part of the business to his children. The buy-sell agreement was being modified and new restrictions were evaluated for estimating the discount of lack of marketability (DLOM) and the minority interest discount calculations. The business valuation cash flow did have some issues around reasonably supporting owner cash flow add backs and these were favorably resolved.
SBA Business Valuation: Equipment Rental Company
The company primarily rents construction equipment, tent rental, and party and catering rental items. In general, these companies tend to be seasonal where summer presents stronger business and more income. This company experienced even more of that phenomenon, as it is near a popular summer beach resort. COVID-19 reduced tent and party rentals, but increased construction equipment rentals. Because of this, the equipment rental company appeared to have an almost typical year. The selling owner had several businesses and had put very little time into this company in recent years. This sale was a first step towards his retirement. The company was being purchased by a long term manager and the purpose of the business valuation was to support an SBA 7(a) acquisition loan.
Business Valuation: Plumbing, Mechanical HVAC Service
The company primarily provided HVAC service work to a large base of residential homes and some light office space in an exurban community. They had $6M in revenues and are a highly profitable company. Much of their business was made up of small service and equipment replacement jobs, with some service contracts. They are particularly effective in internet marketing systems and have good Google and related reviews. They also had a good employee situation with plenty of trained techs. The purpose of this valuation was for partial bank financing of a family transition.
Harvest Business, LLC also commonly called The Art of Business Valuation is an expert business valuation firm that provides business valuations nationally. Our lead valuator Gregory R. Caruso, JD, CPA, CVA, has performed hundreds and hundreds of business valuations and provided training and continuing education for leading business valuation, accounting, and legal programs. Your business value is worth our quality service and experienced business valuation judgment. If you have any questions or need a business valuation for any purpose reach out today.
