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Part of defining an appraisal assignment is to specify what is to be valued. In almost all tax, matrimonial, dissenting shareholder, and ESOP valuations, equity (stock, partnership interests, etc.) needs to be valued.
However, when “the business” is going to be disposed of via an asset sale, what assets are included in the sale, and what liabilities, if any, will be transferred? Buyers often prefer asset sales because of well-known tax benefits (the ability to write up and depreciate / amortize assets) and the avoidance of certain liabilities. Sellers need to be aware of this, and of the difference between gross proceeds (what they receive for the assets and liabilities transferred by the sale plus the value of assets and minus the value of any liabilities they keep) and net proceeds (what is left for them after taxes and remaining liabilities have been paid). If the asset sale includes real estate or equipment, separate appraisals of them will need to be obtained. Moreover, if a broker’s commission is payable, the fee should be based on net proceeds and exclude retained assets and liabilities.
I find it very helpful to calculate gross and net proceeds for sellers. This way, they know exactly what they stand to gain from the transaction, and all assets and liabilities are clearly accounted for, so that there are no surprises.
It might be a good thing if you can sell “your business” for $5 million, but if you keep and have to pay $4.9 million in liabilities, you might have second thoughts.
Valuations play a part in all tax, transaction, and litigation matters. For additional information or advice on a current one, please do not hesitate to call.
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About Western Reserve Valuation Services LLC
Western Reserve Valuation Services LLC, based in Columbus, Ohio, is a leading provider of valuation services and financial opinions relating to corporate finance transactions, corporate tax planning and compliance, succession planning and wealth preservation, employee stock ownership plans (“ESOPs”), financial reporting and portfolio / fund valuations. For more information, visit www.wesresvaluation.com or call (614) 448-3700.
Western Reserve Valuation Services is an affiliate of Western Reserve Partners LLC, a FINRA-member investment banking firm offering financial advisory services relating to mergers and acquisitions, capital raising and financial restructuring. For more information on Western Reserve Partners, please www.wesrespartners.com or call (216) 589-0900.