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WHAT'S IN A BUSINESS VALUATION?

The best answer is "no one knows." Buyers of business valuations (b.v.) beware. Even many of the better trusted advisors are not versed enough to critique a b.v. Perhaps the ones who know quality when they see it are the following:

  1. M&A attorneys who have performed many transactions, and use this information as part of the deal negotiations.
  2. Accountants who often put together financial packages for their clients, including cash flow projections.
  3. Litigation attorneys who assess their b.v. experts based on adherence to solid market date, properly interpreted. In addition, to perform a meaningful and challenging cross examination, the litigator must know what questions to ask and how to probe with follow-up questions.

The 2018 Tax Act has further complicated the playing field. S corporations may no longer be more valuable than C corps. The bonus depreciation regulations just issued confirm that acquired new or used personal property (tax life of 15 or less years) may be immediately expensed. However, there are sunset provisions starting in 2023 which impact future cash flows. We have developed a new model as part of our discounted cash flow (DCF) approach to account for these new rules.

Then there is the new QBI deduction. Accountants have confirmed that they have built mathematical models to determine if and how much of a QBI write off is appropriate. The answers are not simple. The question remains: how will the QBI affect business value? Until the IRS issues the regulations, the answer(s) are subject to debate.

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