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What is a business valuation?

Simply stated, a business valuation is “the act or process of determining the value of a business enterprise and the ownership interest therein.” But that definition is deceptively simple. An independent, professional business valuation is a proven financial tool for businesses that range in size from small privately-held businesses to large and well-established corporations.

Sobel Valuations, through its predecessor firm EAC Valuations, has had assignments around the world and across the street. We have completed more than 14,000 appraisals for clients ranging from multi-national, multi-billion-dollar Fortune 100 companies and financial institutions, to privately-held, local manufacturing and services companies. Our qualified, certified and experienced appraisers exceed expectations for a wide range of appraisal needs meeting IRS, FASB, IFRS, USPAP, and FIRREA requirements.

Throughout all these experiences, the Sobel Valuations practice has maintained a 100% commitment to providing decision makers with a valuation report they can rely on when making short- and long-term decisions and establishing strategies for sustaining future growth and profitability.

Upholding that promise is how we have developed and sustained a reputation for our competence in conducting business valuations and appraisals for decades. Whether considering tangible or intangible assets, we understand the needs that drive business valuations for both small, entrepreneurial, closely-held business and large public companies. As a result, we have developed a distinctive one-stop-shop approach that brings efficiency, confidence and convenience to our clients. We make this happen by bringing together the experience, skills and services necessary for every situation. We assist clients with a business valuation but at the same time we can appraise anything from stocks to real estate to patents to machinery and more, giving our clients a fully integrated approach that is unparalleled in the profession. As such, for almost fifty years, our professional team has been recognized as premier providers of highly credible valuations and appraisals.

We are often asked when, or why, should a company seek a business valuation or an appraisal. There are many answers to this question! The wide variety of reasons for commissioning a professional business valuation cover many of the principal issues that span the life cycle of all businesses. For example, banks may be reviewing machinery and equipment or real estate as collateral for a loan, while the business owner may require a valuation for insurance placement, buy-sell agreements, deferred compensation, estate planning, tax, litigation, or succession planning.

Of course, a mature business or public company will have a very different set of drivers to prompt the need for a business valuation, but the underlying need for accuracy and transparency is present in every situation:

In some cases it is not always obvious that a valuation can provide important information. Owners and their advisors should consider situations such as:


Business/Minority Equity Valuations

There are many different reasons why a company’s leaders or an individual would seek a valuation. One such circumstance is for the purpose of valuing business equity – and especially the value of minority equity shares.

The basis of such a valuation lies in having a solid grasp of the value of the company and / or its stock. This information may be used to settle a dispute, sell a business, assure investors or gain access to new financing sources. Whatever the goal, understanding the value of equity shares is key.

In some instances it is important to value minority equity which can have a lesser value because a minority owner has much less authority or control over decision making in the organization. It is generally assumed that a minority owner is not in the position to influence strategic planning, the election of board members or other significant decisions. Because of the limits placed on a minority owner, a discount is applied to the value of the stock.


 

Corporate Planning

Business owners and C-suite leaders are often told they need to work ON the business as well as IN it. When this sage advice is embraced, corporate leaders find themselves investing time in developing the smart strategies that will enable them to achieve the business’ goals and objectives. It is all too easy to get caught up in the day-to-day demands in any corporate setting, but those who engage in long term, strategic planning realize that they are better positioned to define staff responsibilities, assign accountability and develop the necessary procedures to ensure success. The process of corporate planning begins with a deep understanding of the company’s worth before discussing all the ways to increase profitability and shareholder value going forward. We can assist your compnay in a strategic plan for the subject business.


Deferred Stock Compensation (IRC 409A)

One component of the Jobs Creation Act of 2004, section 409A, states that unless certain requirements are met, deferred compensation is includible in current gross income. These deferred amounts are subject to taxes, fees and penalties at the federal – and in some cases – state and local level. Any individual or entity receiving nonqualified deferred payments is subject to IRC 409A. This means that employees and directors, can be affected. As with anything submitted to the IRS, an independent valuation of stock is required in this instance. In fact, the American Jobs Creation Act includes the requirement that a professional 409A valuation to determine fair market value must be completed to ensure that the government is receiving its share of taxable income.


Due Diligence

Embracing the process of due diligence under specific circumstances is the most efficient way to assure the parties involved that all reasonable measures are being taken to provide the financial or business data and details regarding an organization’s assets and liabilities. Due diligence is most often applied when making major decisions regarding mergers, acquisitions, or other strategic alignments or purchases/sales that may be on the horizon. The parties involved are responsible for digging deep in order to truly evaluate the situation, get the facts, and paint an accurate picture of what is happening behind the scenes. When due diligence is not performed, whether in the instance of determining the value of a company or the value of a potential C-suite employee, the concerned parties are always more vulnerable to making a poor, possibly dangerous decision. The more you know – the more knowledgeable you are – the more confident you are in your actions.


Employee Stock Ownership Plan (ESOP)

An employee stock ownership plan (ESOP) is a type of qualified defined-contribution employee benefit plan under which the company's capital stock is bought by its own employees. An annual valuation is essential to the ESOP process (and required by the IRS and the Department of Labor), providing a measurable value of the business.

 


Estate/Gift/Trust Valuations for Tax

Throughout these web pages the case has been made for business people and individuals to recognize the importance of business valuations. While we have listed many reasons for a valuation, it is important not to overlook gift and estate tax situations.

When business ownership is transferred to the next generation at the death of the predecessor leader, the issue of estate taxes will arise.

Having a valuation prepared can help the new owners manage the challenge. Working with an estate and gift tax specialist along with a professional valuations expert should be a part of the process. 


Intellectual Property Appraisals

The most common definition states that intellectual property (IP) is “A work or invention that is the result of creativity, such as a manuscript or a design, to which one has rights and for which one may apply for a patent, copyright, trademark, etc.” While so many assets are tangible, intellectual property is in the intangible category. It is distinguished by the fact that it doesn’t have a physical presence. While you cannot feel them, see them or touch them, intangible assets by their very nature are extremely important. From innovative business ideas to social media posts to musical compositions, intellectual property is the foundation of our society.

Performing an appraisal to gain awareness of the true worth of intellectual property is essential for companies and individuals. The process provides a defensible value of the IP - whether it is the Nike “swish”, the Susan G. Komen pink ribbon, the Coca Cola bottle, a Prada bag or other distinctive ideas, products and services to be sure that they are not used without permission. This is more critical than ever as today’s technology is enabling a high level of piracy as web content is so easily copied and replicated by fraud perpetrators or foreign competitors produce fake “knock-off” items that replicate the look of famous brands. In every instance, an intellectual property appraisal is an important tool for every business.


 Mergers & Acquisitions Support

The term Mergers & Acquisitions (M&A) is most commonly used to describe the consolidation of companies, or assets, through various types of financial transactions. When the parties are negotiating the terms of the deal and are seeking a fair financial solution – both parties, whether merging or being merged, rely on a consistent and honest assessment of the value of the business.

Accurate assessments to support M&A initiatives are essential in every industry sector, in companies large and small, whether privately-owned or publicly-held, and we are proud to have a well-earned reputation for having cultivated a robust range of valuation capabilities.

Monica Kaden, Director of Business Valuations, brings her broad and deep experience in the healthcare area to enhance and expand the firm’s existing real estate and machinery and equipment expertise. Monica specializes in:

  • Valuing medical practices for acquisition and sale, including private equity offers
  • Preparing valuation reports that comply with specific health care laws specific to healthcare transactions, agreements and compensation, including the Federal Anti-Kickback Statute and Stark Law
  • Serving as a financial expert in litigation matters regarding health care matters; has qualified as an expert in healthcare litigation matters
  • Valuing pharmacies, dental practices, imaging centers, and more
  • Valuing urgent care centers and ambulatory surgery centers for acquisition and sale purposes
  • Valuing management service agreements and professional service agreements, and physician compensation for compliance with laws and to ensure at fair market value
  • Reviewing private equity offers received to consult whether a good deal or not for physicians

Our valuation professionals are well versed across all sectors and are prepared to help every client with all of their valuation needs. 


Our Professionals

Rebecca B. Fitzhugh forensic accountant litigation services

Rebecca B. Fitzhugh

Member of the Firm
Forensic Accounting

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Frank Merenda

Frank Merenda

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Sobel Valuations, LLC

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Monica H. Kaden, MBA, ASA, ABV, CHFP

Monica H. Kaden

Director of Business Valuations
Sobel Valuations, LLC

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Forensic Accounting

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