FAQ: What is the standard of value? Part 1 of 2

One of Synergetic Finance’s services is to provide company valuations to business owners. Because performing a business valuation can be complex, Synergetic Finance founder and author Joseph M. Maas explains how it works and what the standard of value means in his book, “Exit Insight: Getting to ‘Sold!’” The following is an excerpt from pages 87-90. The Standard of Value Determining the value of a business is a complicated task because there are different standards of value. Your valuation advisor must be knowledgeable in selecting the value standard that best suits your purpose because the conclusions of one standard will be quite different from the conclusions of another, and the material difference is likely to be substantial. For example, when appraising the value of a business for the purpose of a third party sale, ‘investment value’ is the appropriate choice. But, if appraising a business by order of a court for litigation purposes, then the standard of value will be defined by statute. In addition, if the wrong standard is applied, the conclusions will invalidate the entire proceeding. There are five standards of value common in valuation proceedings. This review will provide a more complete understanding of how businesses are valued, affording you a broader knowledge of how your business, or the one you wish to acquire, will be analyzed and judged. The figure below shows four of these standards and provides only a simple representation of why one or another might be a favored choice given a particular situation. Types of Value               Fair Market Value (FMV): The most common definition of...

Seattle Seahawks: An Underdog Dynasty

by Douglas daBoone Johnson Efren Herrera’s flailing fumble. Jim Zorn’s no-look throws. A 2006 Superbowl stolen by referees. These are a few Seahawk moments emblazoned on the minds of fans that were put to rest by a 2013 pro football season that celebrated, not just a whole new bird as champions, but dare I say, a dynasty? The Hawks ushered in a new era. “Underdog football” is here to stay, and the NFL will never be the same. Football is a struggle of will— a measure of the fight in the player; it’s a game of emotion that has allowed many a David to overcome Goliath. That said, some of the “Davids” of professional football were rejected and scorned for years, which motivated them to achieve astounding levels of greatness. Jerry Rice was told he wasn’t fast enough. He went late in the draft and became the greatest receiver of all time. Comparably, Tom Brady started a few games in college, but was deemed undersized with a weak arm. He also went late in the draft. After winning three Superbowls, Brady was asked if he’d gotten over the slight. The answer was an emphatic, “No!” What if you had an entire team of underdogs— a team composed of players who did not come from celebrated football high schools—a group who had not played for celebrated college conferences like the SEC? Undrafted players would have something to prove. They’d play with chips on their shoulders. They might strive to become the next Tom Brady or Jerry Rice. If you built a team of such underdogs, you would have, for the...

Long-term care insurance explained: part 2

In our most recent blog post, we introduced you to long-term care insurance and explained risk management and how to evaluate a policy, including factors to consider. We continue our discussion below, beginning with benefit flexibility. Benefit flexibility A comprehensive policy may be purchased that covers the individual in a nursing home, adult day care center, assisted living facility, his or her own home, or just about any other setting. Or a nursing home only or home care only policy may be purchased. Most policies will pay 100% of the daily benefit for skilled care, but many policies will reduce the percentage they pay if care is received for custodial care. Some policies will also reduce the benefits depending on where the care is received. For example, it will pay 100 percent for care received in a nursing home but only 80 percent for assisted living. Further, many polices allow the client to choose a lower coverage rate in order to keep the cost of the policy down. In this situation the policy may pay 100% of the daily benefit for nursing home coverage and the client could choose a 50% or 80% rate for home health care. As long as the coverage is affordable, it is wise to have a policy that pays 100% at any level of care and 100% regardless of the care facility. This way the client can choose where he/she will receive care at the time of claim as opposed to at time of application. Benefits are paid usually in one of two ways. A policy can be designed to pay for expenses actually...

Long-term care insurance explained: part 1

As a person ages, insurance for long-term care will be a welcome lower cost solution as current costs for care in a nursing home is about $70,000 annually. Our elder population is growing as the Baby Boomers enter their retirement years; before long there will be a significant impact on end-of-life health issues, and mortality rates will increase as this generation becomes ill and dies. Elderly people typically require assistance with daily activities such as eating, bathing, dressing, etc. This type of care is called long-term care, and may be administered by family members, or in a variety of assisted living facilities. Because the costs for long-term care can be exorbitant and can quickly deplete assets, and because standard health insurance policies exclude long-term care benefits, long-term care insurance can mitigate the effect of excessive expenses. Risk management Long term care insurance is available to manage the risk of enormous expenses, typically in the later years of a person’s life when they are living on a fixed income. The risk is great, because most people will not be able to afford the exorbitant cost of the care they may need, and their entire estate can be consumed. Some careful thinking about and planning for this very likely situation is mandatory. An analysis of the risks associated with long-term care reveals that the only choices available to an individual considering the financial impact of elderly needs are purchasing an insurance policy, or self-funding the costs. A third choice, dispersing your estate to rely on the resources and mercies of Medicaid, is an unappealing alternative. There are three categories of people...

2014 Retirement Plan Limits

Though the New Year is just around the corner, there is still plenty of time to make contributions to your retirement plan. Here are the applicable limits for 2014:   2014 401(k) Limits   401(k) elective deferrals $17,500 Annual defined contribution limit $52,000 Annual compensation limit $260,000 Catch-up contribution limit $5,500 Highly compensated employees $115,000   2014 Non-401(k) Limits   403(b)/457 elective deferrals $17,500 SIMPLE employee deferrals $12,000 SIMPLE catch-up deferrals $2,500 SEP minimum compensation $550 SEP annual compensation limit $260,000 Social security wage base $117,000     Have a question about your 2014 retirement plan contributions or limits? Need help setting up a plan before year end? Synergetic Finance can help. Contact us today to set up a complimentary...

401(k) Plan Alternatives for Large Companies

In our last post, we talked about 401(k) plan alternatives for small companies. Here we’ll discuss retirement plan options for larger companies. Except for the Keogh plan, larger companies can adopt all of the plans available to smaller companies, but there are nine additional options: Profit Sharing Plan: Employees receive a percentage of the company’s profits based on quarterly or annual earnings. Money Purchase Pension Plan: The company makes annual contributions to the employees’ pension accounts that are not related to the company’s profits. Age-weighted Profit-sharing Plan: This plan allows employers to make retirement contributions based on an employee’s age as well as their salary. New Comparability Plan: A new comparability plan creates classes of employees in a company, and permits the employer to maximize contributions for selected employees. Thrift/Savings Plan: A TSP is a retirement savings plan for employees and retirees of the federal government, in addition to members of uniformed service organizations such as the military, police, firefighters, EMTs and paramedics. Defined Benefit Plan: Employers can also establish a pension plan in which the employer deposits a specified monthly amount. Target Benefit Plan: With a plan of this type, contributions are based on retirement benefit projections; results are tied to the performance of the investments and are not guaranteed. Cash Balance Plan: The employer makes annual contributions to each individual’s account, and on retirement, the originally defined dollar amount is available to the retiree. The monetary value in the account may increase or diminish over the years, with the risk being borne by the employer. Employee’s Stock Ownership Plan (ESOP): This plan is for companies owned by...