Two out of five American marriages end in divorce. Add to that partnership or shareholder disputes — business divorce — and there are excellent odds that the family firm will be in danger of becoming a divisible asset. Judges have always known that businesses are like babies — worth more undivided. So the age old solution is to evaluate the company’s market price, and let one party retain ownership and pay off the other with half its worth. At this point, the most important person in one’s life may be that business evaluator.
When business evaluators are called in to pave the way for buy/sell agreements, family estates, gifts, or loans, the setting is typically calm. But let that company become a tug-o-war asset in a big breakup, and everything explodes. To provide attorneys and business owners advice on how to handle this volatile situation the New Jersey Institute of Continuing Legal Education presents “Business Evaluations: When You Need Them, When You Don’t” on Thursday, September 28, at 5:30 p.m. at the New Jersey Law Center in New Brunswick. Cost: $139. Visit www.njicle.com.
Speakers include Sharyn Maggio, independent CPA and evaluator in Eatontown; superior court judge Patricia B. Roe; and Abigale Stolfe, an attorney with the Frank Louis Law Office in Toms River.
Maggio, a lifelong native of the Jersey shore, graduated from Monmouth University with a bachelors in business and took her CPA in l987.
That’s the basics, but a competent evaluator better have a lot more letters beyond that CPA. After further study from the American Institute of Certified Public Accountants, Maggio joined the Association of Business Valuators (CVA). She then earned her ASA certification, with emphasis on business valuation, from the American Society of Appraisers. She also is a member and instructor for the National Association of Certified Appraisers.
“Credentials from any of the three groups is a good sign of quality, but evaluating is amazingly complex and takes at least a few years of business accounting experience,” says Maggio. Business valuation is a probing audit of the most severe kind, but there are some controls for the business owner.
Choose your evaluator yourself. Typically a judge will appoint a business evaluator in complicated dispute or divorce cases. But often a quick lawyer can grab the reins and make the selection himself. “When people get this chance, I keep telling them to remember that this is their divorce — not their lawyers’ divorce,” says Maggio. “Lawyers are only going to move when they have to, and choose whom they know.”
Maggio suggests that the individual owner actively help in the selection of an evaluator. Experience in the field and the number of cases handled are, of course, important, but equally so is the evaluator’s experience in testifying. If the business is in some way unusual, for example extremely seasonal, it’s good to have an evaluator who can claim familiarity with its niche — and with the locale in which it operates.
At the same time, it is important to understand that the evaluator is not anyone’s advocate. Yet, as the owner, you want someone whose final figure can weather all assaults from opposing attorneys.
Avoid cookie-cutter evaluation tools. It is a myth that evaluators have some sacred formula into which they mercilessly cram each business. There is no one-size-fits-all template. While such templates do indeed exist online, Maggio suggests that these may be good only to satisfy curiosity. They are definitely not an ideal tool for a business owner in dispute with his whole fortune up for grabs. There are just too many variables.
In putting a price tag on a business, the evaluator spirals in slowly. First she examines the particular industry and relates it to current economic conditions. The real estate brokerage cannot be priced at last year’s level today, for example.
This done, the valuator gets an overview of the books and records to decide on an approach. The three classical methods are the market approach, income approach, and asset approach. Each, as the name implies, launches investigation from that point, with ample overlap to be fully inclusive.
Finally, all books and records are scrutinized in detail within a flow of endless variables and adjustments. Capitalization rates, income streams, and asset valuations are all part of the picture. “There is a lot of art as well as science in this work,” Maggio admits.
In the end the evaluator submits a single figure backed up by somewhere between 30 to 300 pages of evidence. The very best thing the business owner can do during this process is to be totally cooperative and have his records well ordered. “If the owner is helpful, I can be in and out in a couple of days,” says Maggio. “But when owners oppose me, things get more expensive, and can drag on for months.”
Stay out of jail. “My major goal in every valuation is to get to substance,” say Maggio. By this she means ferreting out all of those little irregularities in the bookkeeping that may have lightened the tax burden in the past, but today give a skewed version of the company’s net worth.
One of her favorites was discovering a business owner’s personal apartment on St. Croix listed among the company expenses. Other irregularities may be as small as taking the family to a dinner weekly on the company tab, or listing junior’s car as a company asset, or paying junior a salary while he is away at college.
These little tax dodges are items that no one wants disclosed at a trial. Judges are officers of the court and thus bound to report to the IRS any potential tax fraud. “We are not out to nail anybody,” says Maggio, “we just want an honest price and a fair settlement.”
Thus when she discovers evidence of such evasions she contacts the business owner, who, after a brief explanation, is often eager to shift his dispute to arbitration. The judge is also pleased to hear that this case will be removed from his already crowded docket.
“But when I tell the judge and lawyers of the shift in venue, everybody knows what I am saying,” says. “Oh, and you’d better believe that the hidden St. Croix apartment got listed as a divisible asset in the settlement.”
Maggio finds that requests for her seminars are overwhelming. Evaluation has become one of the fastest growing fields in accounting. Because it is one of the most creative areas of the profession, young CPAs are increasing seeking out the specialty. And as current trends have proven, the market will be there to accommodate them.
Two companies — one big, one small — have left Princeton, taking with them more than 180 jobs. Xerox Corporation closed its office at Princeton Overlook to move to another New Jersey location, and a growing software developer, Interactions LLC, is moving out of the state.
Interactions LLC, founded on Princess Road, has almost completed its move to Carmel, Indiana, where it hopes to employ 190 workers by the end of next year. It is receiving hefty financial support from the city and the state, but personal reasons helped instigate the move. Both Michael Cloran, the CEO, and Jim Dreher the president, have family connections in the area.
Interactions develops computer software programs for call centers and aims to change the “interactions” between the caller and the answerer.
Founded in 2002 by former RCN employees, the firm has software tools for the customer contact center industry. When it expanded from sublet space to its own space in 2005, a spokesperson declined to be interviewed on the record, citing patent concerns. “We are swinging for the fences, trying to change the industry radically,” he said.
The company has 57 employees in Carmel plus 38 others based elsewhere. It could receive up to $215,000 in training grants and $5.5 million in tax credits from the Indiana Economic Development Corp. It is also getting tax breaks, over an eight-year-period, from the city of Carmel.
The company traded proximity to New Jersey’s universities to tap talent from such colleges as Purdue, Indiana, Notre Dame and Indiana State.
Interactions LLC, 14390 Clay Terrace Boulevard, Suite 205, Carmel, IN 46032; 317-810-2800; fax, 317-569-1041. Michael Cloran, CEO. Home page: www.interactions.net
Xerox Exits Princeton
Xerox, the Document Company (XRX), 10 Woodbridge Center Drive, Fifth Floor, Woodbridge 07095; 732-750-7500. Mark Conlan, vice president, general manager. www.xerox.com
On Friday, September 22, Xerox vacated 35,000 square feet on the third floor at Princeton Overlook, and 110 of the 130 employees in that office (all of them are salespeople) are working out of home offices. “We have gone virtual,” says a spokesperson.
The 20-person administrative team from the Princeton Overlook office opened a new office in Woodbridge., which will have a demonstration area.
The company also has an office in Morris Plains.
New in Town
Acqueon Technologies Inc., 600 Alexander Road, Princeton 08540; 408-433-5295. Home page: www.acqueon.com
Acqueon Technologies has opened an office on Alexander Road; no Princeton number is available. The headquarters is in Milpitas, California.
The company offers a suite of customer interaction management products, and its software developers and support engineers focus on the telecommunications and IT industries.
Agile Therapeutics Inc., 366 Wall Street, Princeton 08540; 609-683-1880. Thomas M. Rossi, president. Home page: www.agiletherapeutics.com
Agile Therapeutics Inc., which develops pharmaceutical products using a proprietary transdermal drug delivery technology, has opened an office in Princeton.
Its lead product is a seven day contraceptive patch, currently in phase II clinical testing.
Ameriprise Financial Services Inc., 101 College Road East, Second Floor, Princeton 08540; 609-452-2299; fax, 609-452-8866. Gary Johnston CFP, senior financial advisor. Home page: www.ameriprise.com
Ameriprise Financial Services, spun off as an independent company from American Express Financial Services in 2005, recently opened an office in Princeton.
The company offers financial advisory services and investment opportunities, with a focus on retirement planning. The firm also provides workplace financial education to corporations and other institutions.
CLS Pharmaceuticals, 11 Deer Park Drive, Suite 206A, Monmouth Junction 08852. 732-485-9700; fax, 609-587-0762. Home page: www.clspharm.com
CLS Pharmaceuticals is occupying temporary space at 11 Deer Park Drive. The company develops novel ophthalmic drugs.
Directravel Princeton, 107 Rockingham Row, Forrestal Village, Princeton 08540; 201-847-2111; fax, 201-847-2112. Gail Boyer, vice president, administration. Home page: www.dt.com
Directravel is moving one of its Edison offices to Princeton in October to become Directravel Princeton. The travel management company will have seven employees.
WCD Consultants, 7 Tree Farm Road, Suite 206, Pennington 08534; 609-730-0007; fax, 609-730-0011. Chip D’Angelo, owner.
WCD Consultants, an environmental consulting management firm incorporated in 2002, recently opened an office in Pennington. Owner Chip D’Angelo has been in similar businesses for 26 years.
HCR: Handex Consulting & Remediation LLC, 24 Abeel Road, Monroe Township 08831; 609-409-6999; fax, 609-409-7453. Tom Kady, president, northeast. Home page: www.handex.com
Handex Consulting & Remediation, an environmental remediation and consulting firm, opened an office in Monroe Township. The firm is a contractor for the New Jersey Department of Environmental Protection.
Feinstein Kean Healthcare (WPPGY), 33 Wood Avenue South, Suite 600, Metro Park Center, Iselin 08830; 732-603-3892. Michael Lampe, senior vice president. Home page: www.fkhealth.com
Feinstein Kean Healthcare has moved to Iselin. Based in Cambridge, the company provides communications services to biotech and pharma clients (U.S. 1, October 20, 2004). Beth Kramli, formerly with Feinstein Kean in Princeton, is now with Marina Marr Communications in Manhattan (212-485-6848).
Campaign To Save the Environment, 55 Princeton-Hightstown Road, Princeton Junction.
Campaign to Save the Environment has moved. The phone number is disconnected.
CCR Search & Abstract Agency Inc., 1905 Route 33, Concord Square, Hamilton Square 08690; 609-587-1333; fax, 609-587-9302.
The title search company has moved. Attempts to reach the company by phone yielded an answering message with the suggestion to contact a nonexistent extension.
ValPak Direct Marketing, www.valpak.com
Valpak Direct Marketing has closed its Whitehorse-Mercerville Road office as part of a reorganization of the mid-New Jersey region earlier this year. The Hamilton area will be covered by the regional operations now based in Freehold.