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Monthly Archives: June 2018

We have distilled decades of experience at the intersection of law, business and finance into a suite of articles to help our clients make sense of business valuation, forensic accounting, and litigation support. Please visit our site regularly for our latest content.

The Hunt For Hidden Cash and Unreported Income

Posted in Business Valuation, on Jun 2018, By: Mark S. Gottlieb

  Discussing hidden cash and unreported income is always a popular topic for both commercial litigators and family law attorneys.  Currently, we are working on a number of business valuation engagements that have developed into “full blown” forensic accounting and fraud exercises.  Since these issues are currently on my mind, I thought a quick review of some of these issues and techniques would be of interest. Hunt For Hidden Cash Contrary to conventional thinking, forensic accountants don’t automaitclly assume that every closely-held business owner hides cash.  Arguably, some business are more susceptible than others. However, when red flags appear, further due diligence is often required. Experts (as well as IRS investigators) typically rely on certain forensic accounting techniques to prove that cash is missing and to estimate how much income the business owner isn’t reporting. These methods include: Bank deposits. This method involves reconstructing income. In this instance we analyze the spouse’s bank deposits, canceled checks and currency transactions, accounting for cash payments made from undeposited currency receipts, as well as nonincome sources of cash. Nonincome cash sources might be loans, gifts, inheritances or insurance proceeds. Source and funds application. Here, the business owner’s personal sources and uses of cash are analyzed. This approach can be effective in determining where the owner’s income and other funds came from, and how they eventually were used. If the owner is spending more money than he or she is taking in, the excess represents unreported income. Net worth. An unsubstantiated increase in a […]


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Beyond Financials: A look At Key Value Drivers

Posted in Business Valuation, on Jun 2018, By: Mark S. Gottlieb

  Make no mistake about it: Analyzing and understanding the subject company’s financial statements is paramount when opining to value. However, when you start “peeling the onion” other factors play an important role.  This is why you can value two similar businesses simultaneously and arrive at different values. These other factors are commonly referred to as “key value drivers”. Key value drivers can range from a business’s culture, tangible assets, and/or intellectual property. The following provides just a few that should be considered beyond a company’s financial composition. Customers & Competitors Dependency on a few or limited customers will almost always make a business vulnerable.  In other words, a diversified customer base is almost always preferable.  A customer base that extends across several geographic regions or market sectors may add even greater value than one would expect.  This is not just a valuation expert speaking, but a sentiment shared by many sophisticated buyers. An industry by itself can also be a value driver – particularly if the sector is expanding rapidly. Business analysts are often attracted to startups in a young, hot industry – rather than one solely dependent upon organic growth. Keep in mind that you can’t use industry as your sole determinant of value.  Value and the valuation process acknowledges when a company distinguishes itself from the herd.  For example, does the subject company have a unique intellectual property or unusually efficient supply chain? Internal assets Favorable internal factors may also drive a company’s value. Although these factors […]


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