Author: Southard Financial

The Market Price of Risk: Quantifying a COVID-19 Equity Risk Premium Using High-Yield Bond Pricing

Written by Southard Financial on June 25, 2020. Posted in Blog.

This month’s blog post is an article that we recently published in the industry magazine, Business Valuation Resources (BVR). You can read the introduction below and then download a free PDF of the entire article.

Valuation professionals are faced with a complex problem of providing appraisals of private companies with valuation dates in 2020 while considering the market volatility and economic slowdown caused by the COVID-19 pandemic. As entire sections of the U.S. economy were shut down and millions of people were forced out of work, business owners in the United States have faced significant uncertainties about the future cash flows of their companies.

When providing appraisals of companies in the time period where the impact of the pandemic is known and knowable, valuation professionals are tasked with: (1) deriving a discount rate that reflects the level of risk inherent in the company’s future cash flows; and (2) assess- ing whether the cash flows to be discounted/ capitalized reflect the risk and uncertainty the pandemic caused. For example, if the valuation professional is provided with projected future financial statements from company management that reflect the expected impact of the pandemic on the cash flows, then recent guidance from the AICPA and appraisal organizations is to utilize the inputs to the cost of equity capital that would otherwise normally apply (no specific adjustment). However, if management is unable to provide projected financial statements that accurately reflect the impact of the pandemic, then recent guidance from the AICPA and appraisal organizations is that the valuation professional would need to use a discount rate that reflects the risk factors of the COVID-19 pandemic. In other words, the appraiser would need to increase the discount rate by some amount.

In this article, we will develop a methodology to help valuation professionals quantify the additional risk that could be used for appraisals of private companies where forecasted cash flows that reflect the impact of the COVID-19 pandemic are not available.

Download the Entire BVR Article

What You Need To Know: Gift & Estate Taxes And Business Transactions In The Era Of Covid-19

Written by Southard Financial on May 15, 2020. Posted in Blog.

By now, most states in the US are open for business to some degree after the COVID-19 lockdowns. Only a handful have yet to reopen their economies. Most are continuing to operate under partial restrictions, but at least many businesses can begin bringing in some sort of revenue.

What you need to know: ESOP and Community Bank Valuations in the era of Covid-19

Written by Southard Financial on April 27, 2020. Posted in Blog.

Whatever your plans were for 2020, it’s a safe bet that COVID-19 changed them. Its physical and economic impact has been felt literally around the world, and it will continue to have a ripple effect on businesses for months and years to come.

Avoid These Common Pitfalls When Selling Your Business

Written by Southard Financial on March 27, 2020. Posted in Blog.

Harry and David revolutionized the way things were done in their industry. When they came on the scene, no one had ever seen anything quite like the world they created. In their first year alone, they moved over a million units, received numerous awards, and were number one in their market.

Harry, however, could never seem to get what he was after…which is exactly the way David designed it. No matter how hard he tried to succeed, David made Harry’s life difficult at every turn. It almost seemed like David wanted him to die! In spite of their differences, however, they had a very profitable business relationship for nearly 30 years.

What You Need to Know About Market Multiples

Written by Southard Financial on March 17, 2020. Posted in Blog.

Knowing your business’s value not only helps alleviate fears of not understanding what’s really going on with your business, but it also helps you determine when it’s time to make changes in your staff, infrastructure, or products.

An important component of knowing your business’s value is understanding the potential valuation multiple. A valuation multiple is a financial measurement tool that determines a business’s value by multiplying the Company’s EBITDA (earnings before interest, taxes, depreciation, and amortization) by a multiple observed from sales of similar companies.

Charitable Giving helps your Estate Tax Burden

Charitable Giving: 3 Of The Best Ways To Reduce Your Estate Taxes

Written by Southard Financial on January 28, 2020. Posted in Blog.

We recently posted an article about Estate Taxes and how the value of your company affects how much your heirs may have to pay. We pointed out the benefit of having your business properly valued so your heirs know exactly what to expect regarding the value of your estate. We also briefly touched on the idea of transferring portions of your company ownership during your lifetime in order to lessen future tax burdens.

How to Increase Your Company’s Value through Your Employees

Written by Southard Financial on December 19, 2019. Posted in Blog.

In our previous post, we began a discussion on the impact your company’s employees can have on the value of your business. Whenever you decide to sell, you’ll want to understand the role your team plays in the final price you get.

Simple Ways Employees Impact Your Company’s Value

Written by Southard Financial on December 4, 2019. Posted in Blog.

Are you thinking of selling your company to an ESOP? Do you have an existing ESOP and need to explain the benefits to your employees? Or, do you have employees who have some vested interest in the future value of the company? In this post, we will discuss the ways in which your employees can impact the value of your company and ultimately the value of their investment in the company.

Before we talk about employees, let’s do a quick review of the basic components of value.

Why Community Banks Want A Reliable Valuation Company

Written by Southard Financial on October 30, 2019. Posted in Blog.

Most people intuitively know what a “community bank” is, even if it can be hard to define one financially. They are typically the smaller banks just down the street—locally owned, locally operated, and locally involved.

Community banks are the financial equivalent of the cozy diner that knows your order as soon as you walk in the door…a place where the teller you’ve known for years will greet you by your first name. Your kids may even play on the same little league team (sponsored by that very bank, of course). They are the bank where business is done based on relationships as much as a rule book.

Be an Estate Tax Hero…So Your Family Keeps More Money

Written by Southard Financial on October 11, 2019. Posted in Blog.

Disclaimer: This article is for general information purposes only. Do not pass away thinking that this is all you need to know regarding gift and estate tax valuation. Contact your CPA or attorney for official advice before then.

Death and taxes are inevitable. They are also inseparable; when the first happens, you can be certain the second isn’t far behind.

When anyone passes away, there are always plenty of financial loose ends to tie up. However, for business owners, it can be absolutely overwhelming. That’s when you definitely want solid professionals on your side. Especially when you consider how much Estate Taxes can significantly affect property that you wish to transfer at your death.