What Makes a Good Valuation Report?

What Makes a Good Valuation Report?

Most owners already have a predetermined number in their mind when the time comes to establish the value of a company. They often think the value should equal a multiple of earnings or annual sales. However, this method is rarely accurate and is unlikely to maintain merit if the company is sold or involved in litigation. A good business valuation is not only about determining an accurate and reasonable value, but also about being able to defend it if needed with a clear and concise explanation supporting the conclusions.

6 Key Valuation Report Elements

Below is a list of the most common elements included in a well written business valuation report:

  1. Assignment Identification – The valuation professional should identify:
    · The company’s name
    · Size of the subject interest (number of shares or percent)
    · Intended purpose
    · Effective date
    It is important to identify the intended purpose of the report such as gift or estate, buy/sell agreements, financing, or litigation. The purpose will dictate the standard of value, such as fair market value, fair value, strategic value or liquidation value. The standard of value should be clearly stated. Note: Appraisals are only valid for the purposes and dates listed in the report.

  2. Business Description – In this section, the valuation professional should clearly articulate their understanding of the business. Specifically, this should include the nature of the company’s operations, including strengths, weaknesses, opportunities and threats. If the professional does not understand the company completely, it is possible there will be errors or omissions. Either of those may damage the authenticity of the report.

  3. Industry and Economic Trends – External factors affect future cash flow and perceptions of risk, which, in turn, impacts how much a company is worth. This section supports the experts understanding of the environment in which the company currently operates.

  4. Financial Analysis – Past performance may provide valuable insight into future cash flow. Value is impacted by how well (or how poorly) a company has performed in the past – or relative to other companies in the same industry. Sometimes the company’s financial statements require adjustment for discretionary or nonrecurring items or even for unusual accounting practices to arrive at “normalized” cash flows. Since a valuation is of future value, the report should also include a forecast of future operations or at least address company expectations for the future.

  5. Valuation Methods – Appraisers generally consider three approaches when valuing a business:
    · Cost
    · Market
    · Income
    This section should include a clear explanation of which methods were applied to the subject company and why. Different methods or combinations of methods may often be used in the same situation, so this section is important. This area should provide detailed descriptions of the calculations underlying the appraiser’s conclusion.

  6. Discounts and Other Considerations – Some valuation assignments call for discounts. The most common are discounts for
    · Lack of control
    · Marketability
    Other discounts, such as voting, key person, and blockage discounts, may also apply. This section of the valuation report should discuss which discounts are appropriate and why. It should provide empirical evidence to support the discount rates chosen. Comprehensive reports will provide nontraditional sources of valuation evidence, such as previous transactions and offers, loan applications, past appraisal reports and rules of thumb, reconciled against the values derived under the appraiser’s methodology.


Business valuations may be conducted only once or twice during a company’s life cycle. As a result, it is important to understand how the valuation will be conducted and what elements the report should include. If you have questions about valuation reports or need a business valuation for your company, Smith Schafer can help.

Smith Schafer works with business owners, in multiple industries, to uncover the true value of their companies’ tangible and intangible assets.

5 Takeaways from the New Accounting Standards

5 Takeaways from the New Accounting Standards

Do you understand the impact the new accounting standards have on your business? The Financial Accounting Standards Board’s (FASB) lease standard is going to significantly change the look of financial statements and the accounting for leases.

This is significant for any company that has leases or plans to lease real estate, vehicles, construction and manufacturing equipment and other assets. Although the standard does not go into effect until years beginning after December 15, 2019, you should be aware of the pending changes and start preparing.


1. Three Types of Leases – Treated Three Different Ways

  • Finance Leases. The term “capital lease” no longer exists. It has been replaced by “finance lease.” Finance leases will be shown as both an asset and a liability on the balance sheet and result in amortization and interest expense on the income statement. 
  • Operating Leases. Operating leases have historically only been disclosed, but will now be shown on the balance sheet based on the present value of the lease payments. Operating leases will continue to show a rent expense on the income statement.   
  • Short-term lease. A lease with a term of less than 12 months and contains no option to purchase the asset under lease is considered a short-term lease and continues to only be shown on the income statement through rent expense.

2. Balance Sheets are going to be Longer and Larger

Regardless of the size of your company, the new standard is going to change the look and, possibly, the perceived strength of your balance sheet. Both finance and operating leases will now be on the balance sheet. Meaning, balance sheets may need the following lines: 

  • Finance Lease Assets
  • Operating Lease Assets
  • Finance Lease Liabilities (current and long-term)
  • Operating Lease Liabilities (current and long-term) 

You may opt to disclose where on the balance sheet these amounts are presented, however, finance lease assets and operating lease assets cannot be on the same line on the balance sheet, and the same is true for the liabilities.

3. Disclosures are going to be Longer

The current disclosure requirements remain the same; general description of lease, terms and options to extend. However, additional disclosures include, by lease type:

  • Total Costs
  • Cash Flows
  • Weighted Average Remaining Lease Term
  • Weighted Average of the Discount Rates Used

4. Bank Covenants may be Affected

You should be aware of how financial measurements within loans or other documents are written. With operating leases being recorded on the balance sheet, current liabilities and long term liabilities may shift. Companies may want to discuss an option to exclude operating lease liabilities in future loan agreements with their bank.

5. This is Not a 2020 Problem

Companies impacted by the change should begin working toward implementation immediately. You should evaluate your need for GAAP based reporting and think through the potential impact of this change.

How Smith Schafer Can Help

  • Provide training to help you understand the new standard.
  • Assist with taking inventory of your existing leases.
  • Perform analysis of the impact on your existing leases.
  • Create and implement new processes, policies and controls to ensure correct implementation of the new standard.

Want to learn more?

We are hosting free seminars and webinars throughout the year to help you better understand these changes.

Importance of Bookkeeping & Management

Importance of Bookkeeping & Management

One of the most essential partnerships is that between accounting and management. Without a proper accounting and bookkeeping process, the financial data being provided cannot be held as reliable. This is especially problematic not only for reporting, but also for management’s inability to make key long-term decisions. In the early stages it’s easy for ownership to put bookkeeping as a lower priority in favor of sales, client service or new product development. As a company grows, accurate reporting becomes more and more important . To help you understand why effective accounting and bookkeeping should demand their time and attention, we have outlined key areas impacted.

  • Cash Flow Management. Accurate bookkeeping records are needed to analyze the overall financial state of a business. Without up-to-date records, management is not able to understand how much profit was earned or losses incurred. These records also provide insight into whether a company is growing, stagnant or declining. This information is essential in evaluating the overall business, as well as its potential to meet financial goals. When management has a firm grasp on the performance, they are able to strategize and make appropriate adjustments as needed.
  • Day to Day Management. Recording day-to-day financial details will help keep track of vital data needed to run multiple areas of the business. For instance, a quick glance at a report from a well-run bookkeeping process will reveal how much money is owed and from which customers – along with any overdue accounts. Management will also be able to keep up on business expenses and deadlines for things such as loan payments, rent, taxes and standard monthly bills. This can save or reduce costly fees and other penalties.
  • Guide Financial Decisions. Having access to proper bookkeeping data helps the business plan and helps management make financial decisions with clarity and perspective. Forecasting business needs ahead of time and planning for purchases and other miscellaneous business expenses will become easier with the right financial information. Management will have access to the data needed to set projections, budgets and goals for the business, make necessary short- or long-term adjustments – such as increasing the price of certain products or services or cutting expenses to offset a lack of profit in a particular business niche, put more resources and effort into a growing service, or plan for an additional hire.
  • Business Loan Application. If management is interested in taking out a loan or some other form of bank financing, the bank will require financial data to prove that the business is in good economic standing and able to pay back the loan. Banks typically want to see copies of statements, cash flow budgets, projections and other applicable financial data. An effective bookkeeping process will make it much easier to generate the needed report when requested.

Ensuring a smooth accounting and bookkeeping process is essential to having critical financial data when needed – for both internal and external reasons. This is important not only for compliance, but also for strategic decision making. If you need assistance with your accounting or bookkeeping needs, Smith Schafer wants to help. Click here to start a conversation.

4 Ways to Protect your Company from Cybercrime

4 Ways to Protect your Company from Cybercrime

It is estimated, across the globe, cybercrimes cost businesses $450 billion in 2016. Yet companies of all sizes continue to ignore these threats. Many business owners feel they are too small for a cybercriminal to waste their time. However, the opposite is often true. Small companies are assumed to not have the proper safeguards in place to protect themselves or even recognize an attack.


  1. Ransomware. A type of malware (a broad term for software, aiming to inflict damage or breach an IT system). Ransomware requires a company to pay a ransom to regain access to their files or server.
  2. Corporate Account Takeover. Another type of malware, which hijacks a user’s computer in order to trace anything from keystrokes to websites accessed. Malware is often invited into a network through an e-mail link or attachment. Unsuspecting employees click and download the program without knowing it.
  3. Identity Theft via Data Breach. Many companies have sensitive customer information that needs to be safeguarded. Companies known to have this sensitive data often are active targets of cybercrimes.

3 Things Companies can do to Protect Themselves from Cybercrime

  1. Conduct a Security Audit. Determine how easily a cybercriminal can assess a company’s server or files and find issues before they become larger problems.
  2. Test Employees. When it comes to cybersecurity, the number one threat is also the number one defender; company employees. Sending test phishing emails to employees to track how many click on the link or open an attachment.
  3. Have a Plan. An attack could happen, having a plan to resolve and react will save time and money.
  4. Assess Insurance Needs. Insurance can cover payments on ransomware or for downtime recovering from an attack. Determining the overall risk of these attacks will assist in determining the level of coverage, if any, needed.

How Smith Schafer can Help

  1. Review technology and security polices
  2. Technology planning and budgeting
  3. Technology coaching and executive education
  4. Work with IT vendors to implement a stronger security framework


Keeping up with technology is a requirement for the success of a company. Click here to contact Smith Schafer’s Technology Services Group and learn how we can help. We look forward to speaking with you soon.

Tips to Prevent Employee Theft

Tips to Prevent Employee Theft

Learn How to Prevent Theft in Your Business

Not all crooks roam the streets at night. Some might be roaming your company hallways, stealing cash, forging or altering checks and pilfering your inventory and property. Even worse, they may be stealing intellectual property, such as confidential documents or trade secrets. What can you do to prevent employee theft?

Here are 18 crime busters:

1. Talk openly with your employees about theft and dishonesty. Set an example for ethical behavior.

2. Be suspicious of any employee with a sudden financial change. (Has someone started buying expensive clothes, gifts, or cars?)

3. Prosecute offenders. It helps deter further crime. Articulate a zero tolerance policy in your employee handbook.

4. Have the bank send all canceled checks and bank correspondence to a different address (for example, a post office box or your home).

5. Require employees to sign out and sign in equipment. When a staff member leaves the company, make sure laptop computers, cell phones and other equipment are promptly returned.

6. Periodically change locks on doors and file cabinets. And change computer passwords regularly, particularly after someone leaves the company on bad terms.

7. Keep a close eye on petty cash. Be skeptical about excessive voids, credits or damage claims. Investigate all missing documents. Do not let employees think no one notices when something is missing.

8. Visit frequently and unannounced your warehouse or storage areas. Look for suspicious patterns. For example, do certain employees always park near the door?

9. Randomly check deliveries to your business and your customers. There may be hidden stolen goods in them.

10. Never accept photocopies of documents like invoices and delivery tickets.

11. Look into unexplained employee absences. At the same time, be suspicious if a staff member never takes a day off. That could mean an employee is afraid that theft will be detected if he or she is not around to cover it up.

12. Spot-check phone bills for calls to unrecognized business numbers.

13. Conduct unscheduled audits. Pull purchase records from the company files and ask the person in charge if they compared prices. If not, why?

14. Require full documentation. Ask for receipts, delivery times and notes on the condition of goods when they arrived.

15. Pay only for what you receive. Remind staff members that the company does not pay for items not ordered, even if an invoice is submitted.

16. Get professional help. Ask your insurance agent to visit your business and check it out before buying a substantial theft insurance policy. Smith Schafer can perform an internal control study and make recommendations to segregate employee duties in a way that minimizes illegal activities and reduces theft.

17. Hire a bonding company to bond your employees, if possible.

18. Establish an anonymous tip program that allows employees to report questionable behavior.

These are only some of the steps your company can take to help prevent internal fraud.

If you discover suspicious activity and do not have concrete proof, get legal advice before confronting an employee. A false accusation could irreparably harm employee morale and could result in a lawsuit against your company.

For more information on this topic, contact your Smith Schafer professional or check out our Audit Service Page.

2019 Tax Deadline Calendar

2019 Tax Deadline Calendar

Tax Deadlines

Tax reform brought many changes to the tax code, however it did not change the statutory due dates for filing taxes. See below for important tax deadlines through the remainder of 2019.

April 15, 2019

  • Individual Tax Returns Due
  • Individual Tax Return Extension Form Due
  • C-corporations Tax Returns (operating on a calendar year) Due
  • C-corporations Tax Return Extension Form Due
  • Estates & Trusts Income Tax Returns Due
  • 1st Quarter 2019 Estimated Tax Payment Due
  • Last Day to make a Contribution to a IRA, Health Savings Account, SEP-IRA or Solo 401(k) for the 2018 Tax Year.

June 17, 2019

  • 2nd Quarter 2019 Estimated Tax Payment Due

September 16, 2019

  • 3rd Quarter 2019 Estimated Tax Payment Due
  • Extended Partnership Tax Returns Due
  • Extended S-corporation Tax Returns Due

September 30, 2019

  • Extended Estates & Trusts Income Tax Returns Due

October 15, 2019

  • Extended Individual Tax Returns Due
  • Extended C-corporation Tax Returns Due