RBB Valuation News Digest


		A special digest of valuation information and articles for RBB Clients and Friends.		RBB Valuation News Digest

		IN THIS ISSUE: SBA Updates SOP for Lender and Development Company Loan Programs House Bill H.R. 436 (“Certain Estate Tax Relief Act of 2009”) Valuation Tip		From time to time I come across information that I think our clients and friends would be interested in. This News Digest is published to help keep you informed about what’s going on in the world of business valuation and how it might affect you and your business. – RBB Partner, Paul Bardaro, CPA, ABV.

		Rucci, Bardaro & Barrett PC The Right Size Accounting Firm 919 Eastern Avenue Malden, MA 02148 420 Bedford Street Lexington, MA 02420 7 Main Street Atkinson, NH 03811 T: 781-321-6065 F: 781-321-7747 www.rb-b.com		SBA Updates SOP for Lender and Development Company Loan Programs Includes Designation of AICPA Business Valuation Experts (Originally published in the AICPA’s FVS Community News) The US Small Business Administration has revised SOP 50-10 5(A), which became effective March 1st of this year. Essentially they require the use of a “qualified source” or professional for an “independent business valuation” for all loans to finance a change of ownership that are either in excess of $250,000 or if there is a close relationship between the buyer and the seller. For the actual definition, click here.

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				This article, written by Linda Trugman, CPA/ABV, Editor of the AICPA ABV e-Alert is of importance for some of my lawyer friends who might be interested in tax law. House Bill H.R. 436 (“Certain Estate Tax Relief Act of 2009”) “This bill was introduced on January 9, 2009 and has been forwarded to the house Ways and Means Committee. Besides permanently changing the amount to be excluded from estate tax to $3.5 million and changing the top estate tax rate to 45 percent for most estates, this bill is recommending that discounts for family-owned holding companies be legislated out of existence. In other words, if the bill passes, there will be no discounts for lack of control or marketability allowed when valuing an interest in a FLP. Besides the fact that this seems to contradict the fair market value standard, this could also affect many of our practices.” For a look at a description of the bill, click here. To track the bill’s progress, visit this link.


				SBA modifies SOP for designation of business valuation experts (continued) A “qualified source” is defined as a licensed CPA who performs the business valuation in accordance with AICPA’s “Statement on Standards for Valuation Services No. 1 (SSVS1) as well as those holding the AICPA’s ABV credential. The following is taken directly from the SBA’s SOP 50 10 5(A): Business Valuation Requirements – Change of Ownership Determining the value of a business (not including real estate which is separately valued through an appraisal) is the key component to the analysis of any loan application for a change of ownership. An accurate business valuation is required because the change in ownership will result in new debt unrelated to business operations and create “blue sky” or goodwill. A business valuation assists the lender and the buyer in making the determination that the seller’s asking price is supported by historic operations. a) If the amount being financed (including any 7(a), 504, seller, or other financing) minus the appraised value of real estate and/or equipment being financed is $250,000 or less, the lender may perform its own valuation of the business being sold. b) If the amount being financed minus the appraised value of real estate and/or equipment is greater than $250,000 or if there is a close relationship between the buyer and seller, the lender must obtain an independent business valuation from a qualified source. c) A “qualified source” is an individual who regularly receives compensation for business valuations and is either: (1) Accredited by a recognized organization; or (2) A licensed Certified Public Accountant (CPA) that performs the business valuation in accordance with the “Statement on Standards for Valuation Services” published by the American Institute of Certified Public Accountants (AICPA). (3) Some recognized organizations and the accreditations they provide include: (a) Accredited Senior Appraiser (ASA) accredited through the American Society of Appraisers; (b) Certified Business Appraiser (CBA) accredited through the Institute of Business Appraisers; (c) Accredited in Business Valuation (ABV) accredited through the American Institute of Certified Public Accountants; and (d) Certified Valuation Analyst (CVA) accredited through the National Association of Certified Valuation Analysts. d) The lender may not use a business valuation provided by the seller or the buyer to meet these requirements. e) The lender may use a going concern appraisal to meet these requirements if: (1) The loan proceeds will be used to purchase a special use property; (2) The appraisal is performed by an appraiser experienced in the particular industry; and (3) The appraisal allocates separate values to the individual components of the transaction including land, building, equipment, intangibles and goodwill (“blue sky”). If you would like to look at the entire document, click here. Please be advised that this document is approximately 400 pages.

				Valuation Tip The vast majority of U.S. businesses are small to lower mid-size closely held entities. The sale of these two groups is usually conducted by an asset sales transaction. Most owners do not know how to convert stock values to asset values. The conversion can be easily accomplished on a one page worksheet which takes little time to prepare. To see a sample, click here.