Hitchner’s advice on which BV glossary to follow
In his latest issue of Hardball With Hitchner, Jim Hitchner (Financial Valuation Advisors) commends the “fine work” done on the 2021 International Valuation Glossary—Business Valuation. He also points out that six glossaries are now available and/or required to be followed, depending on which valuation professional organizations (VPO) you belong to. Here are his recommendations for three distinct groups with the following designations:
CPA and/or ABV: The AICPA has not adopted the 2021 glossary, and the 2001 version is still part of SSVS VS Section 100, so these practitioners must follow the 2001 glossary. Hitchner (who is a CPA/ABV) says he will follow the required 2001 version (which is still relevant, he says) but will also follow the 2021 glossary as well, but on a “selective basis,” he writes.
ASA only: The ASA has adopted the 2021 glossary, so it must be followed (ignore the 2001 version), he believes.
· CPA/ABV, ASA: For those individuals holding both AICPA and ASA credentials, follow both the 2001 and 2021 glossaries, Hitchner advises. He also suggests that you include (in the body of your report or in a footnote) a discussion of which definition, between the two glossaries, you followed and why (or a statement that either definition would apply correctly to your work).
We also suggest that analysts check with their own professional organizations for guidance.
In the issue, Hitchner also provides 40 pages of analysis with commentary about the differences between the 2001 and 2021 glossaries. Future issues will address the use of all six sets of glossaries.
Nothing personal about goodwill in dental practice
In a South Carolina divorce case, the appellate court reversed the family court on the issue of personal versus enterprise goodwill. In this state, enterprise goodwill is marital property subject to equitable division, but personal goodwill is not (see BVR’s Charting Goodwill map).
Retiring dentist: In this case, the husband, who was 72 years old, was retiring from dentistry altogether and sold his practice to his son for $569,000 plus $51,113 of accounts receivable. The sale was done after the couple had separated but prior to the equitable division of the marital estate. The sales contract designated $424,140 as goodwill and also included a covenant not to compete. The son changed the name of the practice. The family court included all goodwill related to the value of the husband’s dental practice as personal goodwill and not part of the marital estate.
The appellate court disagreed, noting that, since the practice was not an “ongoing concern,” the goodwill was enterprise, not personal, and thus should be included as marital property. The court also noted that the husband had previously sold a second practice of his in another location at similar terms (and also including goodwill and a noncompete) and the remaining payments to the husband were treated as marital property.
Dissenting opinion: There was a dissenting opinion, which pointed out that goodwill in professional dental practices such as the one in this case “has always been classified as personal, non-marital property”—and the prior decisions did not hinge on whether the business was still an ongoing concern at the time of trial.
The case is Bostick v. Bostick, 2022 S.C. App. LEXIS 33, and a case analysis and full opinion will be available shortly on the BVLaw platform.
Helping BV staff advance—when ‘up’ is in short supply
What should you do when staffers want to move up, but it doesn’t look like there’s any “up” to offer? “Think about helping your employees to move forward, instead of up,” advises John Borrowman (Borrowman Baker LLC), a recruiter who has worked exclusively in the BV profession for over 20 years. “This approach can be the ounce of prevention that helps you reduce turnover.” His suggestions:
Offer lateral movement, such as assigning a broader range of engagements or getting them involved in a practice management activity such as campus recruiting;
Enrich their existing job by, for example, dubbing the employee the “go-to” person for a particular engagement or analysis;
Give the employee a temporary assignment so he or she can examine other options; and
Realign the employee’s position by, for example, returning him or her to those job duties which, in hindsight, really are more interesting.
In his latest newsletter, Borrowman also explores how to use learning and development to attract and keep the best talent, offers tips for differentiating your practice in a recruiting pitch, and more.
Global BV News
IVS and Spanish standards are broadly aligned
That’s the conclusion of an analysis the International Valuation Standards Council (IVSC) carried out in conjunction with the Asociación Española de Análisis de Valor (AEV). The AEV is the professional association that represents the Spanish Registered Valuation Companies that carry out around 85% of the valuations for regulated purposes in Spain. The analysis focused on the alignment between the International Valuation Standards (IVS) and the Spanish national regulations contained within the ECO Order 805/2003. Even though there are no major contradictions between them, the IVSC and AEV make several recommendations for additions to the ECO Order. They are:
· Adoption of IVS Core Principles of valuation standard-setting and valuation;
· Adoption of the definitions contained within the IVS Glossary;
· Inclusion of a section on compliance with IVS within valuation reports;
· Inclusion of a Scope of Work or Terms of Engagement as per IVS 101 Scope of Work;
· Inclusion of minimum report contents as per IVS 103 Reporting; and
· Inclusion of sensitivity analysis for the determination of values based on unobservable or estimated inputs, as this is particularly helpful during periods of uncertainty such as during the recent coronavirus pandemic.
You can read more details if you click here.
What’s in the May 2022 issue of Business Valuation Update
Here’s what you’ll see:
“Comments on an Article on Attracting More Practitioners to BV” (BVR Editor). An article in last month’s Business Valuation Update discussed the need to make business valuation a more recognized career path. This article includes some very thoughtful comments by Dr. Michael A. Crain, CPA/ABV, CFA, CFE, an academic and practitioner.
“How Direct Loan Market Participants Are Handling the Handoff From LIBOR to SOFR” (John Czapla). The transition from the London interbank offered rate (LIBOR) to the secured overnight fund rate (SOFR) will continue to present challenges for private lenders and their operating and valuation teams as long as loan portfolios have a mix of LIBOR- and SOFR-based deals and as long as there are numerical differences between term SOFR and term LIBOR. The author is chairman of Valuation Research Corp. and head of its portfolio securities valuation practice.
“A Lesson in Healthcare Supply and Demand—and Market Power, Part 2” (Mark O. Dietrich, CPA/ABV). This is Part 2 of a two-part article that follows up on the author’s landmark research on the fair market value of physician compensation. The issue of insurance market structure and the related impact on the negotiating of provider contracts was addressed in Part 1 of this article. Physician distribution and the impact of local payment rates that determine compensation is addressed in Part 2.
“Breaking Into Bankruptcy Valuations With Little—or No—Experience” (BVR Editor). There are a lot of opportunities for business valuation analysts in the context of financially distressed or bankrupt companies. A veteran expert gives some advice on how to add this area to your practice regardless of your level of direct experience.
“Using the Valuation Report as a Selling Tool” (Gary Trugman, CPA/ABV, FASA, MVS). A business valuation report is the perfect forum for selling the valuation analyst’s conclusion regarding the value of the valuation subject. This is an excerpt from the new sixth edition of Understanding Business Valuation, which has a companion website that includes a good selection of full sample valuation reports.
The issue also includes:
BV data spotlight: “DealStats MVIC/EBITDA Trends,” “FactSet Mergerstat/BVR Control Premium Study,” “Economic Outlook for the Month,” and the “Cost of Capital Center”; and