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business
valuation measuring and managing

Questions and Answers of Valuation Measuring And Managing

=+a. What are the applicable estate taxes and gift taxes?
=+1. If the firm is transferred to family members:
=+6. Explain the various combinations of financing options in private firm successions, and the characteristics, advantages and challenges of each.
=+5. Describe the typical conditions that banks impose to secure their credit.
=+4. How do banks assess the debt capacity of a firm?
=+3. What typical financing options are available in private firm successions?
=+2. How can the incumbent facilitate the financing of the transfer?
=+1. Assuming that the successor is unable to fully finance the succession with his/her own equity and a bank loan, how could the financing gap be closed?
=+9. What advisors do I need to understand the financial implications of the succession?
=+8. Are the free cash flows of the firm sustainable, even in an economic downturn, to support all financing obligations?
=+7. For how long do I have to repay debt before I am debt-free?
=+6. What is the sustainable free cash flow of the firm, that is, the amount that I could use to repay debt?
=+5. In the presence of multiple equity investors, what are the critical terms of a shareholder agreement?
=+4. What are the pros and cons of involving other equity investors?
=+3. How could I structure/combine various financing options so that they match the purchase price?
=+2. What financing options do I have?
=+1. How much equity do I have available?
=+5. What advisors do I need to understand the financial implications of the succession?
=+4. What are the critical deal-breakers?
=+3. If so, how should I secure my ongoing risk exposure?
=+2. Am I willing to help finance the succession, for example via a vendor loan, stepwise sale, earnout or convertible bond?
=+1. Am I looking for a fast exit, without any further involvement in the firm?
=+2. What do you think of the structure of this succession agreement? What incentives does it set?
=+1. Is $450 000 a realistic price for the remaining shares?
=+9. Why is a fully equity-financed firm not necessarily worth more than a partly leveraged firm?
=+8. How do you calculate the weighted average cost of capital of a firm?
=+7. How do you calculate free cash flow, starting with EBIT?
=+6. What is the difference between equity value and enterprise value?
=+5. What assumptions in a DCF valuation have an important impact on the resulting firm value?
=+4. How do you assess the DCF value of a firm? What are the advantages/disadvantages of this valuation method?
=+3. How do you assess the EBIT multiple value of a firm? What are the advantages/disadvantages of this valuation method?
=+2. How do you assess the net asset value of a firm? What are the advantages/disadvantages of this valuation method?
=+1. Why does corporate value appear so different for incumbent and successor?
=+7. Has the incumbent paid him-/herself an above-market-level salary? If so, what would the firm’s cash flow look like if a market-level salary were paid?
=+6. How do the incumbent’s private expenses impact the valuation of the firm?
=+5. Are there any assets (e.g., real estate) that have to be valued differently than the operating business?
=+4. What is a reasonable value estimate as assessed by an independent advisor?
=+3. What are the appropriate valuation methods? What critical assumptions are linked to each valuation method?
=+2. What are the specific risks of the firm which have an impact on future cash flows?
=+1. What is the financial outlook of the firm (balance sheet, income statement and cash flow statement) for the next five years?
=+5. What level of discounts do tax authorities accept compared to a fair market valuation?
=+4. Depending on the succession option, am I willing to compromise on the sale price?
=+3. Do I agree with the price estimate? If not, could emotional biases potentially be affecting my valuation?
=+2. What is a reasonable value estimate as assessed by an independent advisor?
=+1. What critical assumptions are linked to each valuation method?
=+z Does the valuation apply a single or multiple valuation methods? As different valuation methods make different assumptions about value drivers, it is important to triangulate the valuation using
=+z Does the applied valuation method make sense in light of the firm’s business activity?
=+z How plausible are the critical parameters in the applied valuation method?
=+z Have there been separate value assessments for operating and nonoperating assets?
=+z Do the assumptions for value adjustments and budget figures make sense?
=+What adjustments have been applied to the balance sheet and income statement?
=+z How biased are the financial data used to calculate firm value?
=+ Depending on the evaluator’s position at the negotiation table, he or she may have incentives to either deflate or inflate firm value.
=+z Who executed the valuation? Is the evaluator advising the buyer, the seller or both?
=+8. What can parents do to help integrate their children into the family firm?
=+7. What are the potential sources of conflict if management and ownership succession are not well defined between successor and incumbent?
=+6. Consider a firm you know well. What does the roadmap for management, ownership and board succession look like?
=+5. How do the roles of incumbent and successor change throughout the succession process?
=+4. ‘Parallel engagement of the incumbent and successor in the firm should be minimized.’ Do you agree or disagree? Why?
=+3. Given these strategic challenges, what questions do the incumbent and successor need to address?
=+2. What strategic challenges do owner-managed family firms typically face when approaching the succession phase?
=+1. Why is reviewing the firm’s strategy important for the succession process?
=+9. How do changes in the valuation of the firm during succession impact my acquisition of(remaining) ownership?
=+8. When and under what conditions do I acquire ownership in the company?
=+7. Do we need external additions to the board?
=+6. Do I want to become the new CEO?
=+5. Will I become involved on the board? If so, in what role?
=+4. How do I communicate with the incumbent inside and outside the firm?
=+3. What are my roles and responsibilities in the firm when the incumbent is still involved?
=+2. Is the current management team supporting me? Do I need to reconfigure the management team in the future?
=+1. At what level should I enter the firm? What are the pros and cons of the proposed solution?
=+13. How can we support the successor’s integration into the firm?
=+12. Can I ensure my retirement income without significant proceeds from the sale of the firm?
=+11. What will I do with my time after my complete exit from the firm?
=+10. Is the successor able to step up to the leadership role?
=+Do we need to find new managerial talent at a second managerial level?
=+9. Is the current management team supporting the successor?
=+8. How do changes in the valuation of the firm during succession impact the successor’s acquisition of (remaining) ownership later in the process?
=+7. What tasks do I want to pass on to the successor first? What next?
=+6. On the timeline, how do we move from me being 100% owner to the successor being 100%owner?
=+5. How do I communicate with the successor inside and outside the firm?
=+4. Will I stay involved on the board? If so, in what role, and for how long?
=+3. What are my roles and responsibilities when I am involved in the firm at the same time as the successor?
=+What are the pros and cons of the proposed entry path?
=+2. At what level should the successor enter the firm?
=+1. How long should I stay on as CEO? When will I pass on the CEO role?
=+z Which parts of the firm are to be passed on?
=+z What are the future opportunities and threats for the firm?
=+z What are the current strengths and weaknesses of the firm?
=+14. Ability and willingness are both critical characteristics for a successor. What are the likely consequences when insufficiently qualified or committed successors enter the firm?
=+13. Describe the types of commitment that successors can have vis-à-vis the family firm, and explain how the type of commitment relates to work effort.
=+12. Why do incumbent and successor have such different perceptions about the fair value of the firm?
=+11. Why are next-generation family members from very cohesive families less inclined to join their parent’s firm?
=+10. What makes the succession career path attractive for next-generation family members?
=+9. What questions should the successor address when clarifying goals and priorities for succession?
=+8. What questions should the incumbent address when clarifying goals and priorities for succession?
=+7. In addition to the type of successor, how is intra-family succession different from transferring the firm to employees?
=+6. Describe the differences in viewpoints of incumbent and successor with regard to succession.
=+5. What are the critical abilities an advisor needs to have to professionally advise in the succession context?
=+4. When advising in the succession context, why is it inappropriate to start with topics such the legal setup or tax considerations?

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