The Case Studies are provided to give you examples how business valuation consulting services as performed by our firm John M. Leask II CPA, LLC, can help your business.
Acquisition of a new Business
This individual, not a client of Leask & Leask, had 15 years of experience in the working world, a little money saved, and was now ready to take on new challenges by buying his own business. How should he begin the process of finding a business that would meet his goals? Then, what criteria should he use to evaluate the prospective businesses and how should he go about funding the purchase? Leask & Leask guided him through the entire process.
As we regularly do with the numerous referrals of this type that we receive from lawyers, Leask & Leask advised this client on how to go about finding a business of the desired type that also met his goals. After rejecting several, one was found that was deemed a good buy.
We provided advice throughout the process including the due care analysis, examining the firm’s books and records to make a determination as to the reliability of those materials. negotiations to purchase a second related business.
A feasibility study was made to determine the true profit of the business now, and in the future with operational changes, by examining cash flow and income forecasts to best determine profit projections. We also set a negotiating strategy, helping the parties determine the price and arranging the terms of the deal.
The result? The business was purchased and proved to be every bit as successful as was envisioned. In fact, the new owner then engaged us to help with
- One source for accomplishing all of the following: the due diligence analysis, forecasts of future income, assistance in setting the price and terms of the deal.
- Devised a tax strategy and made appropriate tax elections to help maximize deductions and minimize taxable income so that Uncle Sam helped fund a significant portion of the funds used to purchase the business.
- Developed the financing strategy used to fund the purchase of the business.
- Helped management organize the financing request for banks.
- Matched the business with a bank that was willing to fund the purchase of the business and served as the go between for the bank and the business.
Leask Valuation Prevails in Divorce Case
This individual, referred to us by her attorney, was going through a divorce. Her husband owned a 50 percent interest in a retail business. The husband’s interest was valued at $158,000 by the husband’s expert. The wife’s lawyer needed to know if this
was a fair valuation and, if not, what a fair value would be for the business in question. As Certified Valuation Analysts, Leask & Leask was called in to render an expert opinion of value.
Based on our review of the appraisal report provided by the husband’s expert, we were convinced the husband’s interest in this closely-held business had been undervalued. Leask & Leask was engaged to prepare our own appraisal report.
- A review of the depositions, an on-site visit to the retail business, and use of information provided to us by the husband and his accountant in reply to our questions, gave us the background material we needed.
- By employing appropriate valuation theory and techniques that fit this particular fact pattern, the husband’s 50% interest was valued at $324,000. The report thoroughly documented the rationale for arriving at that estimate in the written appraisal report.
- The court was given the task of making the final determination of the business’ true value. After reviewing both reports and hearing the testimony of both experts, the judge determined the value of the husband’s business interest to be $300,000, a value far closer to the results set in the Leask & Leask appraisal report.
- Helped the wife and her lawyer to understand the strengths and weaknesses of the husband’s valuation report as provided by his expert.
- Convincingly demonstrated that $158,000, the value selected by the husband’s valuation expert, was far too low.
- Developed an appraisal report to justify a value of $324,000 for the husband’s business interest and testified in court in support of this opinion.
- The higher value ($300,000) assigned to the business by the court helped the wife get a more substantial divorce settlement.
More then just a valuation engagement
The owner of a highly profitable service business was planning to get married. This person’s attorney suggested that a pre-nuptial agreement be drafted. Since a major asset was a closely held business, a business valuation was recommended as part of preparing a meaningful pre-nuptial document. Another trusted advisor of the business owner suggested the client turn to Leask & Leask for preparation of a realistic and professional valuation report.
As is usual, extensive research on the company and benchmarking studies led to a realistic value for the company. As part of our standard research in preparing a valuation report, we investigated the industry, competitive firms, as well as this company’s operational and strategic plans.
Among the useful findings included in this valuation was that the owner needed to put in place signed non-solicitation and non-disclosure agreements with employees who have regular client contact. Once executed, these documents would help limit the exposure of clients potentially being taken by staff who leave the firm.
In addition, the valuation report provided helpful information about additional services provided by the firm’s competitors.
Some of these services are now being added by the firm, which should help make this highly successful company even more profitable. Finally, strategies were shared for making the business more marketable at a higher value should the owner decide to sell in the future.
The client was very pleased with the valuation report and the supplemental information received. Soon after, the accounting and tax work of the company was transferred to Leask & Leask. As a result John M. Leask II, who led the engagement was asked to sit on the company’s advisory board to help oversee and execute the resulting business plan and to make recommendations to the owner. As our firm’s motto “Advisors to Achievers” implies, we became a part of the team to help the owner achieve their future goals set for the business.
- The value set for the company for use in the pre-nuptual agreement was more than expected but was acknowledged as reasonable and fair.
- The valuation report gave the owner useful information on the future of the industry including critical issues facing the company.
- The oral and written advice given included specific steps the company could take to improve value and profitability.
- As an ongoing client of Leask & Leask the company benefited from Leask & Leask’s professional advice and expert tax services.
Structuring a Corporate Buyout
This local manufacturing company with majority ownership in another state had minority stakeholders at its Connecticut operations. When the firm encountered financial difficulty, John M. Leask II was brought in to review the financial statements to help the minority owners devise a strategy. Given our prediction of bankruptcy for the West Coast parent, we then positioned the Connecticut division so that it could successfully buy itself out when the parent went bankrupt.
Working with their financial statements, it became evident that, although the subsidiary was successful, the parent company was in financial difficulty and that bankruptcy was on the horizon. Our task then became to help position the Connecticut division for a buyout.
In conjunction with division management, Mac worked with a local bank to arrange standby financing. We also helped set the negotiating strategy and arrive at the final purchase price so the division could become a
Once independent, Mac played an active role in hiring a bookkeeper and several other staff personnel. We also provided structure for financial reports and advice to management helping the company flourish so they could pay off their debt within 2.5 years.
Later, we also lent assistance to the firm in the restructuring of their board of directors, finding individuals to bring in from the outside where needed expertise was lacking.
- Arranging financing for the buyout and setting a negotiated purchase price.
- Assistance in staff hiring and in replacing members of the Board of Directors.
- Ongoing managerial and financial advice which contributed to the firm’s prompt debt repayment.
- Increased profitability and cash flow.
Transition in COmpany OwnerShip
This successful manufacturing company with owners nearing retirement age needed a third party mediator to structure an equitable transition to the younger minority shareholders. What was the business worth? How could the controlling interest best be passed in a way that fairly addressed the diverse needs of both the current and future owners?
When outside facilitation proved essential, John M. Leask II became a key resource and helped build consensus.
First, we needed to value the business, arriving at a price and suggesting terms that were equitable to both parties.
John M. Leask II next acted as mediator, taking into account the varied needs of the individuals involved and melding those diverse needs into consensus for a successfully negotiated transaction. Both immediate partner buyouts and additional buyouts over the course of several subsequent years were employed in facilitating the transition of ownership.
- Continued prosperity for a successful company under a new generation of owners.
- Expert valuation of the business.
- Ongoing managerial and financial advice contributing to the firm’s ongoing success.