Contents

• Can You Take it With You? Court Revisits Family Limited Partnership Discounts



• Court Questions Expert's Objectivity, Methodology in Reasonable Royalty Valuation



• IRS Expert Attacks Key Assumptions in Inflated Appraisal



• Finally, a Tax Court Considers a 'Good Facts' Family Limited Partnership



• Double-Dipping Rationale May Have Prompted Court To Prefer Asset Approach



• Working with Appraisers to Solve Problems in Valuing The Very Small Business

Do you know what your business is worth?

Our business valuation experts provide you with an objective, expert view of your company – while helping you understand the value drivers of your business.

In addition to preparation for sale, knowing the actual value of your business is crucial for a number of reasons:

• Buy/Sell Agreements
• Financing
• Mergers and Acquisitions
• Succession Planning
• Marital Disputes

Your business' balance sheets and financial statements are not enough to present the true value of your company. An accurate valuation requires a customized approach.

Our Certified Valuation Analysts integrate basic valuation principles with the very latest developments in business valuation theory to arrive at the most comprehensive valuation possible.

We can also help you comply with the complex requirements of the Statements of Financial Accounting Standards (SFAS) Nos. 141 and 142. These standards require companies to perform a valuation to determine the current fair value of intangible assets and goodwill acquired in a business combination or merger and to periodically test previously recorded goodwill and intangibles with indefinite lives for impairment.

For more information about our Business Valuation practice, email BVLS@SCandH.com or call (410) 403-1500 | (800) 832-3008.

Valuations Insights, Third Quarter, 2008

Working with Appraisers to Solve Problems in Valuing The Very Small Business

Valuing the very small company can often be more challenging than valuing a large firm or corporation. These types of valuations most commonly arise in the divorce cases, although they are also frequently present in shareholder litigation, partnership dissolutions, and similar litigation. Often, client budgetary restrictions are an overriding consideration. However, attorneys and appraisers can work together from the outset of an engagement to meet client budgets and provide credible valuation. Here are a few areas where communication and cooperation can be the most helpful.

• Valuation standards. Just like attorneys, accredited valuation specialists are bound by standards of professional conduct. However, none of those standards distinguish between a valuation for a small business (and perhaps small budget) and a larger business. Once engaged, appraisers often find themselves caught between performing a complete and credible valuation, complying with the applicable standard(s), and keeping the job within a client's budget. In litigation settings, most appraisers expect to be cross-examined on whether they adhered to the proper standards. If not, a lack of client funds will be no defense, and the appraiser's credibility as well as the client's case could suffer.


• Managing expectations. Proper client screening is just as important in the valuation as in the legal context. Appraisers can help retaining attorneys to inform the client why the appraisal is necessary, its potential costs and the benefits that will inure to the case. Clients—especially in the divorce setting—will often suffer from misplaced expectations or assumptions. These clients need to receive the proper information and guidance from their professionals as to the scope of the valuation engagement, its process and the problems it can solve—as well as those it can't, including creating value in a business when in reality there may not be as much as the client anticipated or hoped. These clients may end up dissatisfied, often transferring their displeasure to an unwillingness to pay professional fees—or worse, filing a grievance or malpractice claim.


• Discovery and access to records. Few things can drive up litigation costs and conflict faster than trying to compel another party to comply with applicable disclosure and discovery rules. At the same time, the other side may be genuinely frustrated by receiving an overly broad and generic discovery request. Appraisers can work with attorneys and the client from the outset of the case to narrow and tailor the scope of production, so that the experts will receive all of the documents they need—and none of what they don't. Documenting clear, successive requests for production to the opposing party will also help in the event a motion to compel or an interim motion for fees becomes necessary.


• Professional protection. Communication and documentation are likewise critical to ensuring that both the attorneys and appraisers meet the appropriate standards of care when valuing a very small business—with perhaps a small client budget to go with it. There are rarely any shortcuts in a valuation procedure that pay off in terms of case outcome or client satisfaction. By documenting every action and notifying each other whenever problems or roadblocks may arise, attorneys and the experts will help maintain their own credibility as well as their client and referral sources.

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