BV experts may need to offset management pessimism by upping projections
Management projections have always required thorough analysis. Now, though, it seems they often require outright skepticism. The same irrationality we’re seeing in the markets is affecting the projections we’re getting from our clients, Jeff Dunn of Capstone Valuation Services told appraisers last Friday at the American Society of Appraisers, New York City Chapter’s Seventeenth Annual Current Topics in Business Valuations 2009 Seminar.
It’s not just about overly optimistic projections now, either. At the other end of the spectrum, many are setting the bar intentionally low. Anxiety about capital availability has penalized the assumptions of capital-intensive businesses, Dunn said.
Event organizer, Scott Nammacher of Empire Valuation Consultants in New York City, agreed that appraisers might now need to RAISE projections to correct for management pessimism. Any DCF analysis requires an understanding of the cyclicality of the industry. Discount rates and debt-free cash flows—derived at this low point of the cycle—won’t make sense for a terminal value analysis that begins five years from now.
Dunn offered one suggestion to increase the reliability of management projections: “I used to ask for five year projections, but I now realize that [it] rarely gets you where you want to be. A better [approach] is to [obtain] a set of projections that gets us to a normalized future [and shows] what it will look like on a long-term sustainable basis.”
Dental practices remain a solid source for potential valuation engagements
Why? For starters, dental practices are largely sole proprietorships owned by Baby Boomers who are rapidly nearing retirement. With this in mind, BV experts James Andersen and Ron Seigneur will join Dr. Stephen Persichetti, a practicing dentist and professor of dental practice management, on Thursday, May 14, for Valuing Dental Practices, a 100-minute BVR teleconference at 10:00am PT/1:00PM ET.
The panel will focus on classic considerations as well as emerging trends in dentistry valuation through discussions of transactional versus litigation valuations, specialty versus general practices, and more. A free synopsis of Pratt’s Stats® transaction data is available for dental practices (SIC 8021) over the past 8 years at the webpage for this teleconference. This free download represents a small sampling of the articles, court cases, and data resources made available to attendees of this teleconference. To register, find more information, hear Jim Andersen describe the program in his own words, or get a free download of Pratt’s Stats® data, click here.
Also on deck from BVR in the weeks ahead, is the 11th Annual FAE/BVR Business Valuation Conference, featuring Darrell Dorrell, Ashok Abbott, Jim Hitchner, Michael Kaplan, and other professional leaders. This two-day live event, taking place on May 18-19 in New York City, brings together BVR’s expertise with insiders from the New York State Society of Certified Public Accountant’s Foundation for Accounting Education. Then, on Thursday, May 21, 10:00am PT/1:00pm ET, BVR will offer a recast of Dr. Ashok Abbott’s FAE/BVR session, Liquidity Crisis and Valuation Practices. A live Q&A will follow this presentation. Two CPE credits are available for this 100-minute teleconference. To register or find more information, click here.
Hard times at the nation’s top law firms may hit BV firms
Time will tell, but lawyers account for more than half of the work referred to business valuation firms, according to BVR’s 2009 Business Valuation Firm Economics & Best Practices Survey. In fact, more than 25% of the firms surveyed received more than 75% of their work from the legal market. Thus, the latest news on law firm economics suggests that now may be the time for BV experts to revisit and strengthen such relationships.
Consider: The recently released 2009 Am Law 100—The American Lawyer magazine’s annual survey of the nation’s top grossing law firms based on fiscal year 2008 financial performance data—reveals that last year was The Am Law 100’s worst in 17 years. Indeed, major law firms continued to expand and hire aggressively last year, even as the economy and the demand for high-end legal work (especially in the corporate and finance sectors) hurtled towards a precipice.
As a result, both average profits per partner and average revenue per lawyer dropped last year for the first time since 1991, setting the stage for massive law firm layoffs that began late in 2008 and have continued throughout 2009 as firms struggled to bring staffing and costs into equilibrium with a recessionary economy.
BizMiner blows the competition away with comparative financial metrics on 10,000 lines of business
Have you ever found yourself using financial metrics based on a broad industry description when you really need better-focused details to support your analysis? For example, say you need details on valuing an ice cream store in Atlanta, GA and all you have is comparative financial metrics from the broad industry category Restaurants (SIC 5812). BizMiner’s 5 Year Industry Financial Profile includes detailed data based on almost 13K ice cream stores. Information on other restaurant types that could color your results are not mixed into this analysis. Best of all, ice cream stores are just one of 10,000 lines of business that are included in the 5 Year Industry Financial Profile series. Click here to compare the BizMiner reports to industry financial reports from other providers.
In addition to the Industry Financial Profiles, BVR also offers other BizMiner reports: Sole Proprietor Profit & Loss Profile, Startup Profit & Loss Profile, U.S. Market Research Report, Regional Business Profile, Local Market Research Profile and coming soon, the Competitive Market Analysis. No other competitive product covers these granular financial metrics better than BizMiner. For details—including samples, subscription pricing, and single report pricing—click here.
Total Beta and BPM concepts stand up to serious scrutiny
Experienced business appraisers and representatives from the academic community weigh in on the merits of the Butler Pinkerton Model (BPM) for calculating company-specific risk, in the article, A Total Repudiation of Mr. Kasper’s Critique of the Butler Pinkerton Model, by Peter Butler and Keith Pinkerton and in a piece entitled Academic Commentary on Winter 2008 BVReview Article by Vincent Covrig and Dan McConaughy.
The piece—which analyzes a “critique” of the BPM in the Business Valuation Review—also illustrates that the BPM and Total Beta concepts can withstand serious scrutiny. More importantly, the authors challenge the valuation community to compare the relative merits of Total Beta and the BPM Calculator against any existing cost of capital databases, which do not empirically capture total risk. Better yet, put Total Beta and the BPM to work and judge for yourself!
Four simple ways to galvanize your referral relationships
BV appraiser, consultant, and nationally certified speaker Mel Abraham—president of Mel H. Abraham, Inc., is a scheduled keynote presenter at the NACVA and the IBA’s 2009 Annual Consultants’ Conference, on May 27−30 at the Westin Boston Waterfront. Abraham offers four recommendations for building a practice and generating more revenue:
1. Automate your marketing system. Create a system that works and then automate it. Also crucial, Abraham says, is to include specific goals and activities and commit to doing them in the next 30-60 days. Common marketing activities include: going to networking events, speaking at seminars, sending out client satisfaction surveys, or submitting articles for publication.
2. Clearly define your target market. “Without focus there can be no system,” Abraham asserts. “Your profile should include common demographics, specific needs and challenges, and their industry or profession. To thrive in today's economy requires one to gain distinction through mastery at a deep level. This can only be accomplished through a focused approach.”
3. Focus on value. Abraham recommends highlighting the value of your knowledge, background, certifications, unique expertise, and sum total of your experiences when meeting with a referral source or prospect. This is the first step to differentiation in marketplace that is at risk for commoditization.
4. Get your head straight. You must have the proper psychology to capitalize on opportunities, Abraham believes. “We tend to focus on the failures as failures and then search for blame rather than take responsibility for our contribution to the results.” The key is to extract the learning and make the appropriate shifts needed to continue on the path of growth and ultimately profits. This is the beginning of the psychology of success & peak performance.
Navigate IRS rulings and regs with BVR’s new Business Valuation Sourcebook
Have you ever tried to find anything on the IRS’s website? It can be a frustrating and time-consuming experience. Working with BVR, Bill Sipes has released a new edition of the Business Valuation Sourcebook, formerly published by CCH. This guide pulls much of the relevant rulings and regulations out of the IRS’s website and puts them in one place.
The Sourcebook is the definitive reference for accounting, legal, and other professionals who need to reference at-a-glance information on discounts, premiums, capitalization rates, and other methods and approaches acceptable to the courts, Sipes explains. In addition to all the legal, regulatory, and BV standards information included in the previous edition, BVR has added new content, including abstracts of over 75 important cases, (the full text of the court cases is included on a CD that comes with the book), AICPA’s SSVS 1, a quick reference table of cases by BV topic, selected articles, and other handy reference material. To see a copy of the Table of Contents, click here.