appraisal of your business

[Tom j Armstrong]

--------- Forwarded message ----------
From: Tom j Armstrong <PianosTom@juno.com>
To: yardbird@vermontel.net
Date: Fri, 23 Mar 2001 13:12:19 -0800
Subject: Re: FMV appraisal of your business

I recently went through a divorce.  Business value can be a murky area of
divorce.  The street value of a business is one thing, but a court may
rely more on an accountant.  The legal value of a business is commonly
determined not so much by what it could be sold for, but by using common
accounting protocols.

In my particular circumstance, there was not a large amount of physical
property, such as a building or massive inventory.  My business was
developed mostly while I was married, however, making my former wife the
part owner.  I have no other employees, and my wife did some work in the
past, mostly helping with appointment scheduling, etc.

The "goodwill" value of the business will possibly be the primary item of
value.  In my area (California) accountants calculate the value by first
approximating what could be earned if working as an employee for a music
store or institution  doing similar work.  Multiply that annual salary by
two or three.  Then take your net income (after business expenses) for
the last two or three years.  The difference between the two numbers is a
approximate business goodwill value.  Add in the real value of inventory
and equipment, buildings, vehicles, etc, and that would be the way an
accountant would come to appraise a business. Depending on the complexity
of the business, they will charge one or two thousand dollars to do this.
 

Your attorney can help you determine if it should be divided equally
between the two of you.  I realize that the value reached this way may
seem high to you.  In my experience, it would be difficult to "sell" a
business for an amount approaching these figures, so some realism needs
to come into focus.  Most of us have our reputations, experience, and a
list of names of customers.  The area we live in (desirability and
competition), and the ability of a buyer to pay is probably going to keep
the realistic resale value far less than even one year's net income.  I
don't recall any advertisements in the PTG Journal over 40K for a small
piano tech business, and I assume that they do not always fetch what they
are asking.

I was quite fearful of this aspect of the property settlement.  I
recommend that the accountants and attorneys be kept away as much as
possible, and that you and your estranged spouse negotiate a fair amount
if possible.  If you are going to be paying spousal or child support,
remind your spouse that you don't want to kill the goose laying the
golden eggs. If too high an amount is assessed, I would sell everything,
split it up, and relocate an hour or more away.

I was married for 23 years.  My divorce was surely the most painful and
scary experience I've encountered.  My faith in God, support from friends
and family, and competent legal representation enabled me to survive and
grow, as well as eventually reach an out of court agreement that worked
out reasonably well, even though at great cost.  Rather than have the
legal system gobble up everything we had, financially and emotionally, we
finally learned that neither one of us would be getting what we wanted. 
I highly recommend reconciliation if at all possible and avoiding
divorce.  I also highly recommend the book "Growing Through Divorce", by
Jim Smoke (1995, Harvest House Publishers) available through Amazon.com. 
  
On Fri, 23 Mar 2001 07:55:59 -0500 Bill Ballard <yardbird@vermontel.net>
writes:
> yo, list:
> 
> Who here has had to come up with a Fair Market Appraisal of their 
> business? (For instance, in a divorce situation?)
> 
> The physical aspects are easy.  A thorough inventory of all 
> machinery/tools, all merchandise/materials, and all "raw material 
> and 
> on their side" pianos, with some mutually agreed upon basis for 
> resale value.
> 
> Murkier is the customer list. Were that list to be sold what are the 
> 
> chances that the buyer would be successful in getting the people on 
> 
> that list to transfer their allegiance from the technician of long 
> standing to this newcomer, even with the best efforts of the seller 
> 
> in this transition. And based on an anticipated "nominal failure 
> rate", how much of the value of that list be discounted.
> 
> Further yet is the issue that the main ingredient in this business 
> in 
> manual labor, however skilled. Presumably buyer this business would 
> 
> have skills comparable to the seller, or he would soon find all of 
> his accounts (for both service and rebuilding) leaving. Also, the 
> capacity for the manual labor required and the tolerance for the 
> long 
> hours of self-employed people have to be a given in the buyer. All 
> of 
> this shrinks the pool of potential buyers, lessens the demand for 
> the 
> deal being offered, and depresses the price.
> 
> Further yet is the fact that while the proud new owner of this 
> business would in the best of circumstances have a customer list 
> already established and physical means (shop equipment etc.) to make 
> 
> his/her own dream come true, ie. being a self-employed piano 
> technician doing a broad spectrum of work in a bucolic rural 
> setting, 
> most of the benefits of this dream are *not* financial. Remind 
> ourselves again, are we in this business for the money? If we were, 
> 
> could we say that we were in the right business?
> 
> Given this fact that the rewards are not entirely financial, would 
> an 
> astute buyer bid down the business's purchase price 
> correspondingly?
> 
> There's plenty on this discussion for open discussion by the list. 
> Those of you who have actually been through this process (FMV 
> appraisal of your business, under any circumstances) may reply 
> privately as to how the appraisal was based, and how that work out 
> for you.
> 
> Thanks in advance.
> 
> Bill Ballard RPT
> NH Chapter, P.T.G.
> 
> "The law gets you into everything. It's the ultimate backstage pass. 
> 
> It's the new priesthood"
>      ...........Al Pacino in "Devil's Advocate"
> +++++++++++++++++++++
>