Family Business Director

Corporate Finance & Planning Insights for Multi-Generational Family Businesses

Category

Valuation


Planning & Strategy Special Topics

A Matter of Life (Insurance) and Death

Life Insurance as a Funding Mechanism for Shareholder Buyouts

In the case of Connelly v. United States, a family-owned roofing and siding materials company, Crown C Supply Company, Inc., faces a complex legal and financial challenge following the death of one of its major shareholders. The dispute centers on whether life insurance proceeds should be included in the company’s equity value for buyout purposes, a decision with significant implications for the valuation of shares and the financial future of the company. This case, now headed to the Supreme Court, highlights the critical importance of clear buy-sell agreements and the role of life insurance in shareholder buyouts, offering essential insights for family businesses navigating similar transitions.

Performance Measurement

The Hardest Thing to Do in Business

Family businesses are either growing or shrinking. Since shrinking is not an attractive option, we explore the three primary avenues of growth for family businesses in this week’s post, posing some key questions for your directors and managers to consider as they formulate growth strategies.

Special Topics

Tax Court Sides with Family Business in Cecil

In this week’s post, we analyze the recent Tax Court case, Cecil v. Commissioner. A key issue in the case was the role of appreciated corporate assets in determining the fair market value of a minority interest in an operating company. The Cecil family has owned and operated the Biltmore mansion in Ashville, North Carolina for decades, and the case highlights the intersection of the asset-based, income, and market approaches to valuation, and serves as an important reminder to families evaluating their own estate plans in light of the approaching sunset provisions in the Tax Cut and Jobs Act of 2017.

Steps in a Business Valuation

New Video Released on Family Business On Demand Resource Center

Demystify the intricate process of business valuation in our short 5-minute video. Gain a deeper understanding of the key factors influencing your company’s value, including industry context, economic environment, and the role of control and marketability.

Planning & Strategy

6 Valuation Principles You Should Know

New Video Released on Family Business On Demand Resource Center

Family business directors and shareholders do not need to be valuation experts.  However, there are six basic valuation principles that can help directors and shareholders make better long-term financial decisions for their family businesses.  In this video, we identify and explain these six principles, which are great additions to your family business toolbox.

Capital Structure

All in the Family Limited Partnership

Many enterprising families have January 1, 2026, circled on their calendars. Why? Because the individual estate tax exemption reverts to $6 million (give or take, depending on inflation) in 2026 from its current level of $12 million.  As a result, many estates that are not currently large enough to be taxable will become so, and the effective tax rate for all estates will increase. Has your family considered a Family Limited Partnership? The “magic” of the FLP is the ability to transfer assets to heirs, and out of taxable estates, at discounted values. The IRS is skeptical of many FLP planning strategies, noting that audit challenges may become more frequent as the IRS puts its new $80 billion enforcement budget to work. While the valuation discounts applicable to FLPs may seem like estate planning magic, there really is no sleight-of-hand involved.  Instead, valuation discounts reflect economic reality. We talk more about this in this week’s post.

Special Topics

Only 2% of Small Businesses Know This Key Fact

Do you know how much cash is on your family business balance sheet? How about receivable health and your debt position? Reading this blog, you likely answered “yes” to these questions.

Do you also know how much your family business is worth?

If you answered “Yes,” you are in a select company as 98% of small businesses polled by M&T Bank over the past two years didn’t know the value of their businesses. Knowing and understanding the value of your family business is essential to making critical decisions around dividends, capital structure, or capital budgeting that have long-term effects on your family business.

Travis Harms, who leads Mercer Capital’s Family Business Advisory Services Group, spoke to CNBC recently on the importance of valuation and understanding the value of your business. This week’s Family Business Director post highlights the piece, and we hope you check it out.

Why Do Buy-Sell Agreements Rarely Work as Intended?

The most common valuation-related family business disputes we see in our practice relate to measuring value for buy-sell agreements. Far too often, buy-sell agreements include valuation provisions that appear designed to promote strife, incur needless expense, and increase the likelihood of intra-family litigation. The ubiquity of valuation provisions in buy-sell agreements that do not work is striking.
In this post, we explain the top five causes of valuation process failure, and determine that there is a better way in which a valuation process for a buy-sell agreement can lead to reasonable resolutions.

How Are Business Valuations Prepared?

For family businesses that have never had an external valuation, there is likely to be some confusion as to what the process involves. In this post, we give a brief walk-through of the valuation process, from engagement through to issuance of the final report.

When Does Valuation Matter to Family Businesses?

Why should family business leaders care about the value of their business? If the family is not contemplating a sale of the business, why does valuation matter?

Clearly, valuation matters a lot when it is time to sell. But valuation matters at other times as well. In this post, we describe four common valuation applications in family business.

6 Valuation Principles Family Business Directors Should Know in 2021

Family business directors will make plenty of difficult decisions in 2021, and many of those decisions will require assessing the value of the company’s shares, a particular business segment, or a potential acquisition target.  What should you and your fellow directors know about valuation?  In our experience, there are six basic valuation principles that can guide directors as they make tough valuation-related decisions in the coming year.

Why Your Family Business Has More Than One Value

It is understandably frustrating for family business directors when the simple question – what is our family business worth? – elicits a complicated answer.  While we would certainly prefer to give a simple answer, the reality a valuation is attempting to describe is not simple.

The answer depends on why the question is being asked.  We know that sounds suspect, but in this post, we will demonstrate why it’s not.  Let’s consider three potential scenarios that require three different answers.

What Is a “Level” of Value, and Why Does it Matter? (Part 3)

In last week’s post, we demonstrated how critical getting the level of value right is for family businesses for estate planning, acquisitions, and divestitures. We conclude our series on the levels of value this week, by turning our attention to shareholder redemption transactions.

What Is a “Level” of Value, and Why Does it Matter? (Part 2)

In last week’s post, we defined the three principal levels of value and explained that the levels reflect differing perspectives on expected future cash flows and risk.  This week, we turn our attention to the importance of the levels of value for family businesses.

What Is a “Level” of Value, and Why Does It Matter? (Part 1)

Family shareholders are occasionally perplexed by the fact that the value of their shares can have more than one value.  This multiplicity of values reflects the economic fact that different markets, different investors, and different expectations necessarily lead to different values.

Business valuation experts use the term “level of value” to refer to these differing perspectives. Each of the basic levels of value corresponds to different perspectives on the value of the business.  In this post, we will explore the relevant characteristics of each level.

COVID-19 Coverage Special Topics

Coronavirus and the Value of Your Family Business

As family business leaders continue to make hard decisions in real-time against the ever-changing backdrop of the pandemic, their legal and tax advisors would do well to consider whether this is an opportune time for intra-family ownership transfers.  For many family businesses, the current economic uncertainty presents a unique, and perhaps fleeting, opportunity for more tax-efficient estate planning.

Why Your Family Business Has More Than One Value

It is understandably frustrating for family business directors when the simple question – what is our family business worth? – elicits a complicated answer.  While we would certainly prefer to give a simple answer, the reality a valuation is attempting to describe is not simple.

The answer depends on why the question is being asked.  We know that sounds suspect, but in this post, we will demonstrate why it’s not.  Let’s consider three potential scenarios that require three different answers.

Taxes

Five Takeaways for Family Business Directors from Kress v. U.S.

A recent federal court decision in a tax dispute represented a significant victory for family business shareholders.  The case (Kress v. U.S.) revolved around the value of a multi-generation family business, Green Bay Packaging (“GBP”). While we generally think family business directors have more important things to think about than tax-related judicial decisions, the Kress decision is one with which family business directors should be familiar.  In this post, we identify five important takeaways for family business directors from Kress.

Consulting Services

Family Business Advisory Services

Mercer Capital provides financial education services and other strategic financial consulting to family businesses