Mergers & Acquisitions

Resources: Interviews with Industry Experts

Our goal at Morgan & Westfield is to provide you, our readers, with high quality information and valuable resources to help you navigate through the process of buying or selling your business. In this section, we provide interviews from various professionals somehow involved in the process of buying or selling a business.

Trisch Garthoeffner

Business Appraiser

Importance Of Valuing Your Business Early On

In this interview, we discuss the topic of business valuation and appraisal with Trisch Garthoeffner, Founder and President of Anchor Business Valuations & Financial Services, LLC. Ms. Garthoeffner has over fifteen years of valuation and financial advisory experience and is here to share her extensive knowledge on the subject. She also discusses the valuation of business entities and the appraisal of businesses for tax purposes.


Key Points from Our Conversation

  • “There are many instances in which the IRS requires business owners to obtain business appraisals.”
  • “I learned through my training to have a strong argument for every move that I take in a valuation report as if I will be questioned as an expert witness.”
  • “Of course with the augmented demand for these services comes a lot of new and uncertified experts.”

Interview

Tina: I am looking to hire a business appraiser. What makes a good business appraiser? Is it someone who is purely technical, or are other skills involved?

Trisch: A good business appraiser should have many personal attributes besides technical ability. Through proper training, appraisers learn what they need to learn to complete a proper valuation and how to apply all the information received from the business owners to the correct formulas, etc.; but there isn’t a step in the training process that helps appraisers with the psychological side of the field of business valuations. Though the attorney representing the business owner is more often than not the appraiser’s client, I often find myself dealing directly with the business owners involved more than the attorney.

I, personally, like to determine and/or initiate chemistry with the client, and/or party involved, during an initial one to two hour meeting. During this time, I will discuss the processes involved in the valuation but I also get to know the individuals and make a personality connection. This helps in the success rate of obtaining the documents that are needed/requested, response time to questions and timely compensation . Referrals also go up exponentially whenever I am able to incorporate this personal touch into my initial meeting with the client and as the client learns to trust me.

Tina: In your opinion, what are the minimum credentials that a business appraiser should possess? What additional credentials are valuable? How do I find a reputable appraiser?

Trisch: I am the State Chapter President for the National Association of Certified Valuators and Analysts (“NACVA”), and I am very biased towards the NACVA certification programs because they have served me and my clients so well. At a minimum, an appraiser needs to be certified in doing business valuations, and have trained under a certified appraiser, for a suggested two to three years. Frequently, CPA’s are confused with business valuation analysts, when, in fact, a CPA is very different. Just today, I was working with a peer who has been doing tax work for many years and recently decided to become certified to do business valuations. Her background as a CPA was in audits, tax consulting and tax returns , and she found that the process and training to become a business appraiser was completely foreign to her.

Certification in financial forensics is extremely useful in conjunction with a valuation certification, especially if you are working on divorce and shareholder dissent/oppression valuations. Every valuation that I have ever done involves a degree of forensic work and through the certification process I found many areas in which I can explore even deeper and more efficiently. There are many ways to find certified appraisers (NACVA, AICPA, ISBA, etc.), but the best way to find a reputable appraiser is through referrals. I would suggest meeting with at least two valuation analysts before deciding whom to engage. Unfortunately, I have seen many valuations that are poorly executed, either due to a lack of knowledge of the state standard, an incorrect approach and/or method used, etc.

I have been hired several times to correct another expert’s work for a client who has spent, on average, thousands of dollars on an incomplete report. Taking the time to find a reputable valuation expert and checking their credentials is very important, however a referral from a trustworthy friend or business acquaintance is invaluable!

Tina: How have you seen the business valuation process change over the years? Are things changing for the better or worse?

Trisch: Various technical aspects of valuations are becoming more nuanced and complicated. I dedicate time each week to reading trade publications, blogs and websites to stay ahead and keep aware of valuation trends and changing laws. The somewhat recent change of the valuation handbook from Ibbotson to Duff & Phelps has created a lot of additional discussion and argued complexity. Some of my peers that started in the 90’s talk about a simpler time for business valuation work. For example, for years many valuation analysts applied an accepted flat 35% discount for a lack of marketability, regardless of the particulars of the holding being valued and regardless of supporting data.

The need for the services that I provide continues to grow. One sector in which I see an increased need is within matrimonial law. With divorces continually on the rise, and the average divorce taking about a year from filing to settlement, not only has valuation work needs increased, but the often parallel service of litigation support has also grown in popularity. Of course, with the augmented demand for these services comes a lot of new, and uncertified, experts. I see that there is plenty of work to go around, but I do get frustrated when I lose a job because someone offers their services well below market cost. What I have seen more than not in these instances is that the novice uses a software program to perform a valuation that looks pretty, but has major flaws that are of no fault of the software program. The programs are not substitutes for the experts. The use of computer software program shortcuts time involved, but is not a substitute for, the time and effort involved in the process of research and dedication of a valuator.

Tina: How has the development of business valuation standards affected the process of appraising a business?

Trisch: Standards are necessary and have been in effect for as long as I have been certified as a valuation analyst. Business valuation standards, whether it be from the IRS, NACVA, AICPA, USPAP, etc., are in place to maintain quality control and uniformity, and as a result increase and improve the barrier to entry for the profession. At the purest level, they promote and define the best practices of business valuations. I have actually heard of CPA’s that have dropped their certification so that they would not have to abide by the AICPA standards. There is a lot of talk about having one set of standards for all certified business valuation analysts. This has been in the works for some time and discussed at the last NACVA Florida chapter meeting that I co-sponsored with Howard Lewis, the executive director of the ISBA, in December of 2014 in Coral Springs, Florida. Howard is very knowledgeable on the topic and has been following the progression of events towards one set of standards since the initial seminal discussions took place.

Though the attorney representing the business owner is more often than not the appraiser’s client, I often find myself dealing directly with the business owners involved more than the attorney.

Tina: Does the IRS require business owners to receive a business appraisal for tax purposes?

Trisch: Yes, there are many instances in which the IRS requires business owners to obtain business appraisals. For example, I do fair market valuations for estates and trust purposes, and in mergers and acquisitions when a business sells, to determine the entity’s value and allocation of goodwill (if there is goodwill involved in the transaction). The IRS provides definite guidelines as to what the report needs to include. IRS valuation analyst personnel review the valuations that are put forth by the taxpayers, and it goes without saying that the non-IRS analyst must abide by the IRS guidelines to the strictest ability, and if a valuation analyst veers off the path from the IRS guidelines, then appropriate rationalization as to why must be explained should be included within the report.

Tina: Does the type of entity (C Corporation, S Corporation, LLC, etc.) have an impact on the value of a business?

Trisch: When I do a valuation, I take into consideration the tax advantage of being an S Corporation (flow through entity) versus a C Corporation ( double taxation ), if there is one, and this can add to the value of the entity. There are many books, articles, etc. written on valuing S Corporations or “flow through entities.” I learned through my training to have a strong argument for every move that I take in a valuation report as if I will be questioned as an expert witness; this is invaluable advice. So, if I find a value advantage to being an S Corporation over a C Corporation, I do the research and have the rationalization as to why I take the steps that I do. This is an intuitive step for the most part, but taking into consideration every move as if I were going to be questioned on the witness stand provides an added level of security and caution.

Tina: Does having multiple entities complicate the process of valuing a business?

Trisch: It can. Early in my career, I accepted a valuation to value two retail businesses. The client was out of town and we had many discussions on the phone about the businesses. I had worked with him once before with another expert and when that job was completed he approached me separately and said that he liked my response time and working style and that he wanted me to work with him on two additional valuations. We work very well together, he is a fabulous businessman, and I knew that he kept great books so I accepted the engagement. Documents started to pour in, and before I knew, it I realized that I wasn’t valuing just two retail establishments, but about 75 contracts which were all retail and food & beverage related, held within two entities. Business valuation work is my area of expertise, not his, so I knew that it was my error that I made the assumption that I had, and I completed the valuations within the time period promised and within the cost range that I initially committed. But, I did learn from that experience to always ask for more detail than I think I need. In all likelihood, if the valuation was as I assumed it to be (two retail establishments) the engagement would have the expected amount of added work, not necessarily complications, that is necessary to value two companies versus one. Always ask!

Certification in financial forensics is extremely useful in conjunction with a valuation certification, especially if you are working on divorce and shareholder dissent/oppression valuations.

Tina: Does having multiple owners or shareholders complicate the process of valuing a business?

Trisch: I have found this to be an issue only when there is a dispute to the percentage of ownership. Recently, I worked on a shareholder dispute case in which I was told to value 20% of the entity. When I began to look through the documents that I received for due diligence , I saw that the tax returns showed a different percentage of ownership, for this particular shareholder, on different areas throughout the return. The company’s CPA did not know with 100% certainty the shareholding of each shareholder and the owner with whom I had direct contact was vague. This is one example as to why it is important to have counsel on the case as my client. I had regular communications with the counsel, my client, and he got me the information that I needed which was the contact information of the company’s corporate counsel. In this company there were many shareholders coming and going so I needed not a percentage of ownership as much as I needed the number of shares that the shareholder in question held and how many shares in total that the company had outstanding.

Tina: Can I use my business appraisal for multiple purposes, such as for negotiating my divorce, and also for tax purposes?

Trisch: Absolutely not. The scope of the valuation should be clearly detailed in the engagement letter and the valuation that is put forth, as either a conclusion or calculation of value, which should be used solely for the purpose defined within the scope of the assignment . One reason is that there are different standards of value used for different types of valuations. For a shareholder dispute valuation, a fair value would be used and no discounts would be applied, whereas in a valuation used for IRS purposes, a fair market value would be used in which discounts would be considered and applied as deemed necessary.

I recently did a valuation for a divorce proceeding and the client called me afterwards and asked me if he could use it for verification of income. This reminds me again of the importance of the chemistry meetings and development of a relationship with the client. I want my clients to feel very comfortable with me and respect my work. Even though my engagement letter and my report itself specifies the scope for the valuation, not everyone reads and/or remembers this important information. One of the reasons I enjoy working for myself is that I can allot time to my clients that I otherwise might not be able to if I worked within a firm. Months after an engagement ends, I might receive a text or call from a client asking me a one-off question in regard to the use of the valuation for verification of his income. I am not sure that he would have felt comfortable reaching out to me if I operated in a more stoic manner. I explained to him why he could not use the valuation as requested and the importance in not doing so, and then I helped him get his issue settled without paying for another service.

Tina: Do I need to get my equipment and machinery separately appraised, or will that be included in my appraisal?

Trisch: Hard assets need to be separately appraised if an asset approach or some variation of an asset approach (excess earnings method) is being used in the valuation. An appraiser that is certified to do hard asset valuations must be brought into the engagement. I typically get the go ahead from my client and obtain the valuation from an expert who I have worked with in the past, as I know the quality of their work, their pricing, etc., and then I incorporate their valuation into mine.

The need for the services that I provide continues to grow. One sector in which I see an increased need is within matrimonial law.

Tina: Do you have any other tips of advice for anyone buying, selling or appraising a business?

Trisch: There are so many…. if I had to choose one, I vehemently suggest to anyone who is seriously looking to buy or sell a business to obtain a valuation from a certified valuation analyst early on in the process. Many times people do not want to pay for the service because they “have an idea of value” through a friend who sold a similar business; their uncle is an accountant and gave them a ballpark figure; they saw a similar business in the news that sold for X times revenue, etc. The money that an owner thinks he is saving by not getting a valuation will, on average, cost him more than he is saving in the long run due to unknown value left on the table. By working with a good valuation analyst, an owner will feel more confident and secure throughout negotiations whether it be for the sale of their business or in a divorce.

Finally, I feel it is worth the extra time spent to find an analyst who enjoys the process of performing a business valuation. Passion about the work will make the process easier and will be apparent in the end result. I truly love what I do and from start to finish I am devoted and involved in completing the valuation professionally and in a timely manner. Often I wake up in the middle of the night with a new angle to a valuation that I am working on and I get excited about the prospect of getting up the next morning to put my idea to paper; therefore, I know I am in the right field for myself and can do the best job for my client.


Trisch Garthoeffner’s Bio

Trisch Garthoeffner, CVA, MAFF, EA

Anchor Business Valuations & Financial Services, LLC
4851 Tamiami Trail North, Suite 237, Naples, FL 34103
312.632.9144
trisch@anchorbvfs.com

www.anchorbvfs.com

Trisch Garthoeffner is a Certified Valuation Analyst (“CVA”) and Master Analyst in Financial Forensics (“MAFF”) through the National Association of Certified Valuators and Analysts (“NACVA”) and was recently appointed NACVA’s Florida State Chapter President. In addition she serves as a representative for the Internal Revenue Service as an Enrolled Agent (“EA”). EA’s are the only federally licensed tax practitioners who specialize in taxation and have unlimited rights to represent taxpayers before the IRS.

She received her undergraduate degree, Cum Laude, from Franklin and Marshall College in Lancaster, Pennsylvania and attended New York University for accounting coursework. Currently, Trisch is attending Florida Atlantic University and is slated to receive her Master’s Degree in Accountancy, with a concentration in Business Valuations and Financial Forensics, in January 2017. Trisch is the President and Founder of Anchor Business Valuations, LLC (“Anchor”). Anchor is focused on business valuations for private and public companies ranging in size from $50,000 to $100,000,000 in gross revenue. The valuations that Anchor provides are used in estates and gifting, divorce, mergers & acquisitions (“M&A”), SBA loan approval, lifestyle and income analysis, shareholder disputes/oppression and business optimization planning.

Prior to founding Anchor, Trisch worked on Wall Street as a financial analyst and an investment advisor at several bulge bracket financial institutions including Merrill Lynch and Lehman Brothers. She has valued and been a transaction analyst on over 500 lower and middle market merger & acquisition transactions ranging in size from $20,000 to one billion and is a previous holder of the FINRA Series 62, 79, 7 and 63 securities licenses.

Over the past year Trisch has presented to the Collier County Bar Association, NACVA, Above Board Chamber and the American Business Women’s Association and has written several articles on the world of business valuations for various trade publications. In her spare time Trisch enjoys spending time with her daughter, running and antiquing.

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