Posts Tagged ‘vls’

Employee Spotlight: Jason Thompson

Jason ThompsonAs one of the founding Partners of Sponsel CPA Group, Jason Thompson has led the firm’s Valuation and Litigation Services department since inception, helping clients find innovative solutions to challenging financial and legal issues. He provides executive-level counsel to business owners and investors across a broad range of industries, specializing in the valuation of privately held businesses, ownership interests and intangible assets.

A graduate of Indiana University with a bachelor’s degree in accounting, Jason places a strong emphasis on continuing education and expanding his areas of expertise. In addition to being a CPA for over two decades, he holds certifications as an Accredited Senior Appraiser (ASA), Certified Fraud Examiner (CFE), Financial Forensics (CFF) and Accredited in Business Valuation (ABV). Jason routinely provides consultation related to business valuation in mergers and acquisitions, in estate and gift tax compliance and planning and for an array of litigation related reasons. In addition to his skills as a valuation professional, he also performs the firm’s fraud and forensic accounting investigations and serves as an expert witness from time to time in accounting and financial related matters.

In 2008 he was named a Super CPA award by Indiana Business magazine. Active in the community, Jason volunteers his time as a board member for Noble of Indiana, a not-for-profit organization serving people with disabilities and their families.

Succession Planning: Selecting the Right Leadership

(Part 2 of 6)

Jason Thompson thumbIn our last article on succession planning, we gave an overview of how to begin the discussion of an exit strategy for the business owner or owners. Now it’s time to look at selecting the right leadership team to ensure a smooth transition, as well as maximize the value of the company in preparation of a sale – whether to a third party or a family member.

One of the keys to making a business more valuable is to have the right human assets, talent and skillset already in the company at the management level. Depending on the role of the business, one of the best ways to provide for the perpetuation of the company’s success is to ensure you have outstanding management in place in all vital areas of the operation.

Think about it from a seller’s perspective. If you knew most of the key managers who helped build and run the business would leave after the transaction, or if the current leadership seems inept without daily guidance from the current owner, it will seem like much more of a challenge to take on. As a result, they won’t want to pay as much.

On the other hand, the more the managers already in place can operate in an autonomous way without requiring direction from the current owner/leader, the more valuable the company can be.

The first priority should be in the “C-suites,” the highest-level executives: the CEO, COO, CFO, CIO and so on. It’s obviously critical to have the “right people on the bus” — those who have the proper expertise for their role and share a common vision for the company’s goals.

But don’t ignore the lower levels of management. It’s smart to take a really hard look at the organization chart in a strategic manner, and think about who might be ready to retire or move on – and who their replacement might be.

In contemplating a succession, you should perform an exercise where you evaluate every key position you have, whether the current person is performing up to task, and if you have somebody identified who would be the logical choice to step in and take over.

At Sponsel CPA Group, we advise most owner/managers to start thinking about succession five to 10 years out – though it’s never too late to start planning. During this phase it’s important to recruit, train and promote from within the business so your bullpen is always strong.

This can be a challenge for some strong-willed CEOs, who think everything revolves around them and the business would come crashing down without their daily oversight. This may be true, and even gratifying to some extent, but it diminishes the potential value of the company if the people around you aren’t trained to operate in your absence.

We recommend that business owners meet from time to time with managers in vital positions to assess their place within the organization. Talk frankly about what’s expected of them today, and also how you envision their role changing in the next three to five years. If you spot a hole in the skillset they’ll need to advance to the position you both desire, develop a plan to fill it.

It can even be helpful to have a written plan of how to groom someone for their move up the company ladder. For example, in year one they will take on certain new responsibilities; in year two they will gain oversight of this particular department, and so on.

If you feel like your current team of managers isn’t up to snuff, start making moves now so in a few years they’ll be fully trained and ready to go when you’re heading out the door. This will not only help the company you created or grew, but enhance your own financial position when the business gains in value.

If you have any questions about the succession planning process, please call Jason Thompson at (317) 608-6694 or email jthompson@sponselcpagroup.com.

How to Value a Business: The Market Approach

(Part 3 of 4)

 

Amber HooverIn our last article on the valuation process, we discussed the income approach, one of three valuation methods available to a valuation analyst as they determine the value of a company (or partial ownership of the company). This article talks about another approach, the market approach, and the specific methodologies within it.

The International Glossary of Business Valuation Terms defines the market approach as a general way of determining the value indication of a business, business ownership interest, security or intangible asset by using one or more methods that compare the subject of the valuation to similar businesses, business ownership interests, securities or intangible assets that have been sold.

In general, this approach is based on the theory of substitution, meaning that a known value can serve as a benchmark indicator of the value for a particular subject. In order to apply the market approach, the valuation analyst must identify and establish a relationship between the known values of another business (or business ownership interest) and the valuation subject.

Within the market approach, two of the more popular methodologies are the Guideline Public Company method and the Guideline Private Company Transaction method. As indicated by the names, the source of the known values used as guidelines is either public company values or private company values.

There are numerous sources for information on public companies, leading one to think this methodology would be most commonly utilized. While there is an abundance of data available for use in this method, the key to utilizing the method is establishing a “substitute” or “comparable” for the particular subject business or ownership interest.

When it comes to publicly traded companies, many are gigantic in revenue size and have diversified revenue streams, global operations, skilled and highly knowledgeable management, ready access to capital markets, complex capital structures and a wealth of other characteristics that simply don’t exist for a privately held business, or exist only in a limited fashion. These differences, if not properly adjusted for, can make use of this method quite challenging.

The private company transaction method is a second source for guideline information. In most instances private companies do not publicly disseminate the details of a sale. However, in some cases these transactions involve brokers or other professionals who may retain that information. With proper permission, they can submit it to various databases that collect and analyze transactions.

Valuation analysts subscribe to databases such as Prats’ Stats, BizComps, DoneDeals and the Institute of Business Appraisers (IBA) Market Database to gather information for use with the guideline private company transaction method.

Like the public company method, analysis of the information related to the transaction is key to identifying whether a particular transaction or a group of several transactions are a good substitute/comparable for use in valuing the subject business or ownership stake.

A third methodology often utilized within the market approach is the Prior Transaction method. This methodology uses prior transactions of the subject company as an indicator of current value. In applying this method, it is important to assess the circumstances surrounding the prior transaction in order to verify it is an arm’s length transaction and is representative of current market expectations.

In the final article of our series, we’ll analyze the asset approach to valuation.

For more questions about how to determine the value of your business, please contact Amber Hoover at (317) 613-7844 or acash@sponselcpagroup.com.

Fraud 301: Why do perpetrators commit occupational fraud?

 (Final in a 3-part series)

Jason Thompson thumbIn the first part of our series, we dealt with popular occupational fraud schemes. In Fraud 201 we discussed who commits occupational fraud. This article delves into why employees may commit fraud and offers some suggestions on what you can do to keep it from happening.

Dr. Donald R. Cressey, a criminologist whose research focused on embezzlers, developed the following hypothesis:

“Trusted persons become trust violators when they conceive of themselves as having a financial problem which is non-sharable, are aware this problem can be secretly resolved by violation of the position of financial trust, and are able to apply their own conduct in that situation, verbalizations which enable them to adjust their conceptions of themselves as trusted persons with their conceptions of themselves as users of the entrusted funds or property.”

This hypothesis is the foundation for Cressey’s “Fraud Triangle,” a model for explaining the factors that cause someone to commit occupational fraud. The factors are Pressure, Opportunity and Rationalization. The existence of these three factors together can lead to fraudulent behavior.

Pressure is an incentive or reason for doing something. Pressure can be internal or external to the company. Internal pressures include perceived lack of appreciation, the perception of being under-compensated, being mistreated by a supervisor/boss/owner, etc. External pressures include addictions, unexpected financial difficulty, health concerns, family financial pressures, etc. In the context of occupational fraud, the pressure ultimately causes a financial problem for the employee. Thus they are forced to look for ways to solve their personal financial issue.

Identifying pressures is often a difficult task and one that may not provide a benefit in excess of the cost when trying to deter fraud. Keep in mind, however, that many convicted perpetrators were living beyond their means. So having knowledge about your employees’ activities outside of you business can prove to be a valuable fraud prevention technique.

Opportunity is any chance for advancement. Opportunities exist for employees when they have both access to an asset and access to the company records regarding that asset. For instance, when an employee has both the ability to authorize and record a cash disbursement.

Opportunities can be minimized with well-designed internal controls. Therefore, a review of your company’s processes, combined with periodic oversight and inquiry, will help in identifying opportunities and ways to eliminate them. Segregation of duties and authorization, along with avoiding conflicts of interest, are also strong preventive tools.

Rationalization is often considered the trigger for fraud to occur. Rationalization is the justification of the fraud as the solution to the pressure. In general, most people are good and want to do good things. Therefore rationalization is necessary in order for the good person to allow the pressure to coerce them into doing a bad thing.

The existence of all three fraud triangle factors in a particular instance causes the chances of fraud to skyrocket. Don’t get caught holding the triangle — know your critical employees, design and implement effective internal controls and watch for changes in employees attitudes, habits and activities.

If you are concerned about occupational fraud in your organization, call Jason Thompson at (317) 608-6694 or email jthompson@sponselcpagroup.com we would be happy to discuss how we could be of assistance and ideas for prevention that you can take advantage of.

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