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Family Law: Understanding the Hypothetical Seller and Buyer

FACT: The emotions of spouses involved in a divorce often obscure the value of a company (or ownership interest), one of their most important marital assets. The spouse keeping the company (in-spouse) often argues that the company is less valuable. On the other hand, the spouse leaving the company behind (out-spouse) often argues that the…

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Business Valuation FAQs

Are valuations really necessary? A valuation of a business entity or ownership interest, though recommended in many circumstances, may not always be necessary. If it is necessary, a valuation analyst may not have to perform the valuation. If a taxpayer, however, performs the valuation in a tax-favored transaction and either understates or overstates the value…

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Earnouts

Buyers and sellers often use “earnouts” or “‘contingent price deals” to bridge valuation differences in merger and acquisition negotiations. An earnout is a payment made in the future by the buyer contingent upon the performance of the seller’s business after it is acquired. An earnout is based on revenue, gross profit, net income, future business…

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Capitalized Excess Earnings or Cash Flow

Family law attorneys are familiar with the Capitalized Excess Earnings (or Capitalized Excess Cash Flow) method to value the tangible and intangible assets and goodwill of a company. The formula itself, though simple, is often misused and misunderstood partly because earnings (on an accrual basis) and cash flow are rarely synonymous. Which then is more appropriate: earnings…

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Employee Stock Ownership Plans (ESOPs)

FACT: Estimates indicate that, as of the millennium (2000 A.D.), $6 trillion of personal wealth consisting mostly of private family businesses will transfer over the next decade without an immediate market. If you want liquidity and believe that your employees contributed to your company’s success and should be rewarded with company ownership, then an Employee…

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Do You Own a Business or a Salary?

Are you selling your business?  Do you own a business or just a salary? In economics, a business (also called firm or enterprise) is a legally recognized organizational entity designed to provide goods or services to consumers. However, the economic definition is based only on legal recognition. If your business only provides you (as the…

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Fair Market Value or Fair Value?

State laws concerning family law generally define the standard of value for valuing marital property (the company or ownership interest) in a marital dissolution or divorce. The family law courts have generally used either the fair market value (FMV) or fair value as the standard of value, each with their own (and sometimes contradictory) definitions,…

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