An attorney called us to help settle a partner dispute involving his client, Dana*, who owned approximately 30% of the stock in a growing business. Dana discovered over the course of several years her partner, Vigo, took out excessive compensation, disproportionate distributions, employed family members at high salaries for minimal duties and used company funds for excessive personal travel and entertainment expenses. To add insult to injury, after several years working together to build the business, Vigo fired Dana from a paid management position when she began questioning his expenses.
 
Dana's attorney hired us for two purposes. One, to perform a forensic analysis of the financial statements and two, to determine Dana's pro-rata value in the business as of the date Vigo fired her.
 
We scheduled out total compensation, travel and entertainment for Vigo and his family for several years. We then determined reasonable salaries for Vigo and his family and industry-average travel and entertainment expenses. The difference between the actual payments and calculated reasonable amounts resulted in an increase to annual operating profits. Additional distributions due to Dana were computed by subtracting amounts actually paid from calculated amounts.
 
After recalculating annual operating profits, we prepared a business valuation report for use in mediation and by the Court to compute Dana's pro-rata value in the business as of her termination date.
 
RESULT: The case went unsuccessfully to mediation and then successfully to trial. Dana prevailed in Court based upon the well-prepared case by her attorney and Berntson Porter's expert calculations, valuation report and testimony. Dana eventually received significant payments for underpaid distributions and for her pro-rata share of business value.
 
Our Business Transition and Valuation Services group specializes in business owner exit planning and implementation, merger and acquisition advisory services, and business valuations for litigation, divorce, gift and estate, and owner transfers. We also have experts focusing on forensic analysis and litigation support for a variety of purposes. Please call Allan Vander Hamm at 425.454.7990 or avanderhamm@bpcpa.com to learn more about these services.
 
*Names have been changed to protect client identities.