BVR Logo December 11, 2019 | Issue #207-2

BVWire is your go-to source for the latest in the business valuation profession. Highlights for this week include:

Finishing touch put on the CEIV credential program

The Quality Monitoring (QM) program for the Certified in Entity and Intangible Valuations (CEIV) credential has been finalized. The QM program was the last major issue to be ironed out for this credential, which is designed for professionals performing fair value measurements for corporate entities and intangible assets.

Lingering logjam: The AICPA, ASA, and RICS began their collaborative effort to develop the credential in 2014, and it was launched in 2017. Since then, about 150 professionals have received the credential, but many more are in the pipeline. The Big Four, as well as some smaller firms, embraced the program but stopped short of credentialing their people pending the finalization of the QM program. Firms had several concerns about the process, most importantly the confidentiality of client information, which is addressed in the finalized program.

The QM program is a proactive process that is a combination of ongoing credential maintenance requirements and the completion of an annual Quality Compliance Assessment. The annual assessment will evaluate the credential holder’s implementation of the Mandatory Performance Framework and determine whether it is being properly followed. The QM program officially begins on Jan. 1, 2020, and credential holders will be required to submit their first Quality Compliance Assessment in 2021.

A special website,, has more details on the credential and its requirements.

Washington appeals court issues key ruling on entity goodwill

In a “complicated” (court’s word) dissolution case, the Washington Court of Appeals recently made an important ruling on whether a professional limited liability company (PLLC) can have goodwill separate from the goodwill of the professionals.

Focus on location: In 2005, the plaintiff, through his professional service corporation, acquired an ownership interest in the defendant’s oral surgery practice. The acquisition agreements stated the assets of the practice included “equipment, furniture, and fixtures, accounts receivable, goodwill, and patient files.” (court’s emphasis) A portion of the purchase price was allocated to goodwill. Under a partnership agreement, if the partnership ended, the parties would negotiate in good faith as to how to divide the jointly owned practice interests and “which of the Parties will continue to practice at each of the places of business of the Partnership.”

In late 2005, the doctors formed a PLLC to conduct the business. This entity operated under a trade name and ultimately oversaw three locations in which the doctors practiced. In 2014, the doctors’ business relationship broke down. While they negotiated the division of assets, including who would get which practice, the plaintiff sued, and the defendant countersued over alleged breaches of contract and business torts.

In early 2015, the court dissolved the PLLC and appointed a receiver to supervise the dissolution. The receiver’s authority included maintaining the PLLC’s business as a going concern “for a reasonable period of time” until there was a final division of the company’s assets and liabilities. Both parties filed motions for summary judgment. The defendant’s motion included a motion to dismiss the plaintiff’s request for a division of goodwill value. The trial court found the goodwill issue had to be resolved at trial. Both parties presented expert testimony.

The trial court, crediting the plaintiff’s expert’s testimony, found there was entity goodwill as of the dissolution date and it continued throughout trial. The assets of the entity were still being used, including an assembled work force, specific systems and procedures, and, most importantly, the three locations. “Location is the most valuable asset of the practice after the practitioners themselves. Consequently, location in this particular case has value and comprises a large portion of entity goodwill,” the court said. The plaintiff’s expert broke the value of goodwill down by practice location and arrived at a total value of $1.8 million. Under equal distribution principles, the plaintiff was entitled to half of that amount, the trial court found.

The defendant appealed the goodwill findings. The Court of Appeals organized the defendant’s contentions into a series of questions, moving from the general to the fact specific. The overarching issue was whether, as a matter of law, a business entity providing professional services lacked goodwill because only the individual professionals could possess goodwill.

The court answered no. “We adopt the rule that a professional business entity may enjoy goodwill as the rule that best follows the phenomenon that some customers or clients chose to conduct business with the professional organization not only because of the individual skill of one professional inside the entity.”

Moreover, the appeals court concluded that, in this specific case, the PLLC had goodwill in that it maintained locations and a website in its name and it had its own phone number patients called. Also, since it was the PLLC that employed the staff, the entity, not the individual doctors, possessed and maintained patient files.

The Court of Appeals’ decision includes other goodwill findings, all of which served to affirm the trial court’s decision.

A digest of McLelland v. Paxton, 2019 Wash. App. LEXIS 2960 (Nov. 21, 2019), and the court’s opinion, will be available soon at BVLaw.

Goodwill impairments up a whopping 125% in 2018: D&P study

Total goodwill impairment soared to $78.9 billion in 2018, up 125% over the prior year, according to the “2019 U.S. Goodwill Impairment Study” by Duff & Phelps. The study examines general and industry goodwill impairment trends of more than 8,800 U.S. publicly traded companies through December 2018. The hardest hit industry was the industrials sector, with an aggregate goodwill impairment of $25.1 billion in 2018, although $22.1 billion of that total was from GE alone. Healthcare, consumer staples, and energy also had large increases in goodwill impairment. The outlook for 2019 is for overall goodwill impairment to see a significant decrease, the study says.

Extra: The Financial Accounting Standards Board (FASB) is exploring whether to move from the current impairment model for goodwill to one of amortization or a hybrid approach. See our recent coverage of this matter.

Recession talk driving down small biz valuations

Over half (53%) of business brokers surveyed say a recession is the biggest concern affecting business valuations in the U.S., according to the “Q3 2019 Market Pulse Report.” “The market doesn’t like uncertainty particularly on Main Street,” said Craig Everett, Ph.D., director of the Pepperdine Private Capital Markets Project at the Pepperdine Graziadio Business School. “Small business owners are worried that a recession is coming, and trade issues are causing volatility. All that nervous energy means buyers are dialing back a bit—particularly on smaller market deals.” Uncertainty over the upcoming presidential election and the trade wars with China are also having an impact on small businesses but less so than a looming recession. The Q3 2019 survey was conducted in early October and was completed by 236 business brokers and M&A advisors.

Reasonable comp on IRS radar in S corp audits

IRS examiners looking at S corps now have an item on their audit checklist asking for justification for owner’s compensation, according to RCReports in its December email newsletter. The “2020 Annual Audit Plan” from TIGTA says the agency will look at whether the IRS has implemented policies, procedures, and practices to ensure that compensation is considered in examinations of closely held S corporations and their shareholders. RCReports is a cloud-based software application designed to quickly calculate accurate and defensible reasonable compensation for closely held business owners. Its wage database covers hundreds of industries and thousands of job descriptions and provides users with robust and independent data on which to base a client’s reasonable compensation.

TEGoVA OKs draft of first European BV standards

For years, the European Group of Valuers’ Associations (TEGoVA) was hesitant to add guidance on business valuation to its European Valuation Standards because its members are real estate valuers. But now the group has approved a draft of the first edition of the European Business Valuation Standards (EBVS). These standards are tailored to the needs of real estate valuers who also undertake business valuations as well as real estate valuers seeking to diversify into the field of business valuation. TEGoVA will develop training programs for real estate valuers who wish to develop business valuation skills. The standards will be launched in Warsaw at a special international conference on March 24, 2020, hosted by the Polish Federation of Valuers’ Associations. TEGoVA is a European nonprofit association composed of 72 valuers’ associations from 37 countries representing more than 70,000 valuers in Europe.

BV movers ...

People: Bob Sprague has joined Springfield, Mo.-based BKD LLP as a managing director in the forensics and valuation services division; he will work from the firm’s Chicago office … Brian Dermott has joined Frazier & Deeter as a principal, and Chase Gund and Joseph Barron have joined as a manager and a senior associate, respectively, to expand the firm’s Transaction Advisory Group based in Charlotte, N.C., which focuses on serving private equity groups, corporate strategic buyers, mezzanine lenders, and other investors.

Firms: MG Valuation LLC and Câmara & Smith LTDA announced their affiliation to provide clients with enhanced valuation and consulting services in Brazil and Latin America. MG Valuation is an independent valuation firm, serving clients in the Americas, Asia Pacific, Europe, and Latin America; Câmara & Smith provides a variety of valuation and consulting services for property types including manufacturing properties, retail, office, hospitality, and resorts … Washington, D.C.-based Tate & Tryon PC will merge with RSM US LLP on Jan. 1, 2020; Tate & Tryon specialize in nonprofit organizations … Bloomington, Minn.-based Boeckermann Grafstrom & Mayer (BGM) has added Weber & Deegan Ltd. of Edina, Minn., and Majeski Jahnke & Co. of Eagan, Minn.; the BGM group of companies now has more than 140 employees … Chicago-based UHY LLP and UHY Advisors Inc. have expanded in the Midwest region with the addition of the professional services practice of Becker and Rosen CPAs of Maplewood, Mo., a suburb of St. Louis.

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Upcoming BVR training events

  • Pure vs. Salable Personal Goodwill: Drilling Down in Divorce Valuations (December 11), with Robert Dohmeyer (Dohmeyer Valuation Corp.) and Peter Butler (Valtrend).

    The traditional definition has goodwill consisting of two components: enterprise and personal. But it really has three components: personal goodwill can be broken down into two parts: (1) “pure” personal goodwill; and (2) salable (transferrable) personal goodwill. Learn all about it in this webinar.

  • BVLaw Case Update: Kress, Vinoskey plus three more cases that dominated 2019 (December 17), with R. James Alerding (Alerding Consulting LLC) and Sylvia Golden, Esq. (Business Valuation Resources).

    A discussion of state and federal cases that includes the year’s tax decisions that have reframed the conversation on tax affecting, a statutory appraisal case illustrating the Delaware Court of Chancery’s current approach to determining fair value, an ESOP trial court decision that solidifies the DOL’s litigation success, and a Florida divorce case on how to value personal goodwill.

We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) or Sylvia Golden, Esq. (Executive Legal Editor) at:

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