Case Studies

We believe in building strong relationships with our professional partners and knowledge sharing. We regularly publish Case Studies, using scenarios to illustrate the sometime complex interplay of business, finance, regulation and ethics facing the accounting professional today.

Employee Share Schemes and Business Valuations

Employee Share Schemes Complex Valuations Independence

To help retain experienced employees, a mid-sized IT consulting company formulated an employee share scheme. Due to the significant number of users relying on the valuation, and the size and complexity of the company, a premium business valuation report was required.

Buy/Sell Insurance and Business Valuations

Buy/Sell Insurance Succession Planning Balance Sheet Reporting

This mid-sized construction company took a pro-active approach to insuring Directors. By obtaining an independent business valuation report on a yearly basis, the company avoids any future disputes amongst Director’s and their families.

Professional Indemnity Insurance and Business Valuations

Professional Indemnity Insurance Buying a Business Independence

A valuable relationship of professional trust, built up over time, often finds Accountants being asked by regular clients to provide services outside their regular sphere of expertise. Common situations include advising in relation to the purchase or sale of a business where perceptions of bias may call into question the independence of financial analysis. Another issue, often not as apparent, concerns the delivery of professional services and exposure in relation to the coverage afforded by PI insurance.

Business Valuation Multiples and
Capitalisation Rates Explained

Valuation Multiples Capitalisation Rates Risk Profile

Determining the appropriate valuation multiple, or capitalisation rate, is often the most difficult task when valuing a business. When considering the value of a business, it is not uncommon or surprising for experienced Valuers to hold differing opinions as to the most appropriate multiple to apply. Unlike other professionals, for example in the real estate industry, business Valuers often do not have the benefit of a reliable pool of sales statistics to compare. They therefore must rely on other methods to determine the most appropriate multiple to apply.

Partner Buy-outs and Business Valuations

Independence Partnership Dissolution Valuation Methodology

Two business partners operate a fitness centre through a company structure. The Directors have chosen to end their partnership as one wishes to leave the business. The firm’s Accountant has been asked to undertake a valuation of the business to enable the buy-out to proceed. Naturally, each of the Directors are hoping the report delivers a different result, leaving their Accountant conflicted.

Share Buy-Back and Business Valuations

Employee Share Scheme Fair Market Value Independence

A small parcel of a company’s shares are held by its employees. The arrangement was inherited many years earlier, when two businesses merged. Now, in challenging market conditions, neither the remaining employees nor the major shareholders were satisfied with the arrangement for a number of reasons. Negotiating a solution would require many discussions and consideration of alternative proposals. But, before any progress could be made, it was necessary to establish the fair market value of the shares in question.

Employee Buy-In and Business Valuations

Buying a Business Fair Market Value Independence

A long-serving and loyal employee is finally presented with the chance to purchase a successful business upon the retirement of the original owners. The succession plan was not a new one, but important details such as price expectations had never been discussed, let alone agreed upon between the parties. Unfortunately, the price the sellers set differed considerably from the buyer’s expectation, placing her in a difficult situation. Her challenge was to find a way of completing negotiations without impacting a long-standing relationship.

Industry Method applied in Business Valuations

Valuation Methodology Buying a Business Succession Planning

The price for the sale of a real estate franchise is under negotiation, with both buyer and seller failing to agree on the appropriate business valuation method to use. A third party professional was engaged to provide not only an independent fair market valuation, but to test and validate the most appropriate methodology to apply in the situation.

Valuing Intellectual Property Licenses

Licensing Royalty Rates Intellectual Property

A software developer is enjoying significant success with a product deployed in call-centres. The unique product has attracted the attention of a number of large firms keen to acquire the software for themselves. The developer would prefer to retain control and license the product to others. The developer has a challenge: how to properly weigh up the offers to buy the Intellectual Property rights against the long-term income that would be derived from licensing the software.

Enterprise, Equity, Goodwill and Business Valuations Explained

Enterprise Valuation Equity Valuation Goodwill

A key consideration of every business valuation is determining exactly what requires valuing. Is it the business enterprise, shares in the holding company, goodwill or all of the above? This paper seeks to clarify the differences between an Enterprise Valuation and an Equity Valuation and outline how Goodwill is calculated.

Divisional Splits and Business Valuations

Divisional Splits Restructure Valuing a Start-Up

Silver Fern Ventures services the mining industry. The company has recently developed an innovative new product. To assist with attracting investment, and to separate the new venture from the company’s core activities, it was necessary to establish the market value of the new division.

Intellectual Property and Business Valuations

Intellectual Property

Green Light Group Ltd is a small electrical and solar company that have developed a new energy saving in-home application. While they have secured patents and developed the technology, the company requires a capital injection to progress the technology to market. After several rounds of discussions with an international investor, Green Light’s Directors make the decision to obtain an independent valuation of their Intellectual Property.

Owner Remuneration and Business Valuations Explained

Owner Remuneration Valuation Theory Normalising

When assessing the value of a business, it is necessary to take account of variables in both a firm’s accounts and its approach to conducting business. Such reviews help to establish a credible value in the context of the broader market place. Often it is necessary to adjust the earnings of a business to take into account any abnormal or discretionary income and/or expenses. The most common, and often significant, adjustment concerns remuneration payments to business owners.

Valuation Methodology and Business Valuations Explained

Valuation Methodology Methodology Testing Applying Methods

Accountants and Business Owners are frequently curious to understand the science behind a professionally executed valuation. Determining the most appropriate valuation method is the first step. This paper outlines the process a Valuer undertakes to help determine the most appropriate and valid valuation method to apply in each situation.

Minority Discounts and Business Valuations

Minority Discounts Partnership Dissolution Shareholder Value

The resignation of a partner in a well-known law firm triggered disagreement as to the value of the departing partner’s shareholding. Fortunately, the firm’s shareholding agreement foresaw this eventuality. It specified an independent business valuation be commissioned to resolve any dispute. The shareholding in question represented a minority interest, adding a further layer of complexity. Discounts to the pro-rata valuation needed to be applied.

START-UPS AND BUSINESS VALUATIONS EXPLAINED

Start-Ups Methodologies Venture Capital

The dawn of the digital age, and the evolution of the smart-phone as an essential part of daily life, has seen a quantum increase in the number of start-up businesses. But the challenge every start-up entrepreneur has faced remains: mounting a convincing and believeable pitch that will secure the much-needed funding to germinate the seed of a business idea and grow it into a full-fledged, successful business operation. This Bizval paper is intended to shed some light on aspects of this oft-confusing process.