What is a working capital true-up calculation?

In most mergers and acquisition transactions, the asset purchase agreement states that the seller is required to deliver to the buyer an agreed-upon amount of working capital (excluding cash in most cases). This is known as the Target Working Capital and for the purposes of this post, let us assume $1 million is the Target …

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Cryptocurrency and divorce: key questions to consider

Interest in cryptocurrency, also known as digital currency, has recently exploded. Bitcoin perennially continues to be the largest cryptocurrency, followed by Ethereum. There are well over five thousand cryptocurrencies with new ones being formed and obscure names rising into prominence every day, most recently Dogecoin. One industry report estimates that approximately 20 million Americans may …

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Here’s how to fail when testifying as an expert

I first started testifying when I was a cop on the Tucson Police Department many moons ago. Those cases all involved the commission of a crime – some of the misdemeanor type and others involving felonies. After my career as a police officer, I became an accountant and then, eventually, a CPA. As a CPA …

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Estimating future earnings of a child or minor

One of the biggest challenges facing an expert when assessing damages in matters involving children is the future lost wages portion of a calculation. Estimating future earnings, probable educational attainment, and evaluating worklife expectancy are only some of the considerations that make these cases difficult and when the incident happens at such a young age, …

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Sell-side due diligence: Cheerleader or value service?

Should a sell side due diligence be an exercise where the consultant provides a financial due diligence report that presents the sellers business in its best light at the expense of overlooked problem areas, or should the consultant perform rigorous procedures to uncover potentially problematic issues that could disrupt the sales process if the buyer …

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Prenuptial agreements and the forensic accountant

Prenuptial Agreements (prenups) are used between two people prior to marriage to address certain financial aspects of their marriage. For those entering a second or third marriage, it can help define what assets will be available to the future spouse and what will be set aside for the children. A prenuptial agreement can make the …

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Will it ever be the same – One year later

About a year ago I drafted a blog titled ‘Will it ever be the same again?’ where I discussed how investor, cash flows, and growth expectations will impact valuations of privately held companies in the COVID-19 environment. One year later, let’s check how that blog aged over the past year (*spoiler alert* my expectations of …

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Discount for lack of control and majority interests

Can you, and should you, apply a discount for lack of control when valuing a majority interest? Well, with almost everything valuation related, it depends. A recent tax court case (Estate of Warne v. Commissioner) allowed a small discount for lack of control discount for majority interests in several Limited Liability Companies (LLCs). Don’t miss: …

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Why prepare your business for sale?

Question: Have you heard of EBITDA multiple erosion? EBITDA multiple erosion is the process where the buyer has exclusivity with the seller (after the letter of intent is signed) and begins the financial due diligence process. All the negotiation power moves from the seller to the buyer during this period and this is when the …

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Why form an ESOP?

Employee Stock Ownership Plans (ESOP) are qualified retirement programs available to corporations with tax advantages to both the employees, the company and the owner/former owner. ESOPs are formed with the creation of an ESOP trust which buys the stock, in part or in whole, from a shareholder or shareholders of the corporation. The selling shareholder …

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