The pandemic has caused us to make many changes to the way we do things, and business valuations are no exception. Joining us today to discuss valuations, volatility, and so much more is business valuation expert, Ron Seigneur from Seigneur Gustafson LLP.
In this episode, you’ll hear the three imperative questions that need to be asked when it comes to valuations, the difference between fair market value and investment value, why judges like to have the option to choose between the two, and the difference between enterprise good wealth and personal good wealth. We also delve into the Thornhill case before Ron explains how he handles disagreements in valuations, how today’s climate has changed valuation, and why forward-looking models are the way to go.
Key Points From This Episode:
What is Divorce at Altitude?
Ryan Kalamaya and Amy Goscha provide tips and recommendations on issues related to divorce, separation, and co-parenting in Colorado. Ryan and Amy are the founding partners of an innovative and ambitious law firm, Kalamaya | Goscha, that pushes the boundaries to discover new frontiers in family law, personal injuries, and criminal defense in Colorado.
To subscribe to Divorce at Altitude, click here and select your favorite podcast player. To subscribe to Kalamaya | Goscha's YouTube channel where many of the episodes will be posted as videos, click here. If you have additional questions or would like to speak to one of our attorneys, give us a call at 970-429-5784 or email us at info@kalamaya.law.
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DISCLAIMER: THE COMMENTARY AND OPINIONS ON THIS PODCAST IS FOR ENTERTAINMENT AND INFORMATIONAL PURPOSES AND NOT FOR THE PURPOSE OF PROVIDING LEGAL ADVICE. CONTACT AN ATTORNEY IN YOUR STATE OR AREA TO OBTAIN LEGAL ADVICE ON ANY OF THESE ISSUES.
The pandemic has caused us to make many changes to the way we do things, and business valuations are no exception. Joining us today to discuss valuations, volatility, and so much more is business valuation expert, Ron Seigneur from Seigneur Gustafson LLP.
In this episode, you’ll hear the three imperative questions that need to be asked when it comes to valuations, the difference between fair market value and investment value, why judges like to have the option to choose between the two, and the difference between enterprise good wealth and personal good wealth. We also delve into the Thornhill case before Ron explains how he handles disagreements in valuations, how today’s climate has changed valuation, and why forward-looking models are the way to go.
Key Points From This Episode:
What is Divorce at Altitude?
Ryan Kalamaya and Amy Goscha provide tips and recommendations on issues related to divorce, separation, and co-parenting in Colorado. Ryan and Amy are the founding partners of an innovative and ambitious law firm, Kalamaya | Goscha, that pushes the boundaries to discover new frontiers in family law, personal injuries, and criminal defense in Colorado.
To subscribe to Divorce at Altitude, click here and select your favorite podcast player. To subscribe to Kalamaya | Goscha's YouTube channel where many of the episodes will be posted as videos, click here. If you have additional questions or would like to speak to one of our attorneys, give us a call at 970-429-5784 or email us at info@kalamaya.law.
************************************************************************
DISCLAIMER: THE COMMENTARY AND OPINIONS ON THIS PODCAST IS FOR ENTERTAINMENT AND INFORMATIONAL PURPOSES AND NOT FOR THE PURPOSE OF PROVIDING LEGAL ADVICE. CONTACT AN ATTORNEY IN YOUR STATE OR AREA TO OBTAIN LEGAL ADVICE ON ANY OF THESE ISSUES.
Ryan Kalamaya (3s):
Hey everyone. I'm Ryan Kalamaya.
Amy Goscha (6s):
And I'm Amy Goscha.
Ryan Kalamaya (8s):
Welcome to the Divorce at Altitude A Podcast on Colorado. Family Law.
Amy Goscha (13s):
Divorce is not easy. It really sucks. Trust me I. know Besides. being an experienced divorce attorney, I'm also a Divorce client.
Ryan Kalamaya (20s):
Whether, you are someone considering divorce or a fellow family law attorney. listen in for weekly tips and insight into topics related to Divorce co parenting and Separation in Colorado. Welcome back to another episode of Divorce Altitude. This is Ryan Kalamaya This week. We're gonna be talking about discounts. We are entering the holiday season at the time of this recording and everyone's looking for a discount. And that would also apply to Eric and Melanie Wolf, our hypothetical Divorce clients going through, you know, a Divorce of their own and specifically when involving businesses. And in previous Episodes, Amy And, some of our other guests have talked about discounts and business Valuations.
Ryan Kalamaya (1m 8s):
But this week we're gonna be talking with an expert on business Valuations Ron Sr. He wrote an article for the Colorado lawyer, we've referenced that trade publication before in October and he addressed some of the issues and uncertainties in business Valuations that frequently do come up. And we're going to dig into those with Ron. But let me introduce our Listeners to who Ron is. He's a founding partner of Senior and Gustafson, which is based in Lakewood Colorado. He's responsible for financial forensics, business and intellectual property valuation, practice management, consulting and exit and succession planning services.
Ryan Kalamaya (1m 52s):
He's the co-author of several articles, books. He's starting a Guide to Financial Expert Guide for Family Law Professionals and Judges. We're gonna talk about that at the end. He's an adjunct professor at the University of Denver, Daniels College of Business where he teaches business appraisal classes and he's also the vice chair of the Business Valuation Committee for the American Society of Appraisers. I could go on and on. We could talk about Michigan State versus University of Michigan where he got an b a and all of that. But before I go on, Ron, welcome to the show.
Ron Seigneur (2m 28s):
Thanks Ryan. I'm really excited to be here. And I will enjoy the opportunity to discuss what we're gonna go through today.
Ryan Kalamaya (2m 35s):
Yeah, so for, let's lay the groundwork. Eric Wolf, you know our hypothetical Divorce client, he is going through a divorce and there's a business. So can you tell our Listeners what are the different kinds of value that one would look at in a Divorce or just in tax or some other valuation metric when we're talking about a closely held business?
Ron Seigneur (2m 59s):
Yes, absolutely. Whenever we're engaged to value a closely held business, there are three fundamental questions that we always start with. Regardless of whether it's a Divorce or an m and a transaction or state planning, the date of valuation, what date do we need it valued as of, because that value can change based on things in the economy and covid and everything else. The premise of value, is it a going concern versus is it a business that's about ready to be liquidated and the standard of value? And there are three primary standards of value to choose between. There's fair market value, which is defined by the US Treasury and it's in the regulations used for tax related Valuations and other PURPOSES.
Ron Seigneur (3m 46s):
There's fair value and there's investment value and each of those standards of value will lead you to a different result. When we go about doing our analytical procedures to come up with an opinion as of the value of Eric Wolf's business in Divorce, in Colorado, typically the two choices are fair market value. And fair market value is essentially what's it worth between a willing buyer and a willing seller each being knowledgeable the facts and neither being under duress to complete the transaction. That's paraphrasing the US treasury definition of fair market value versus investment value.
Ron Seigneur (4m 28s):
What's it worth to a specific individual? And in Colorado Divorce there's case law that supports investment value sometimes in Colorado Divorce known as value to the owner versus fair market value. The definition I just gave. And those are at the, it's a legal distinction, it's at the discretion of the court in Colorado. And if the court chooses fair market value, you might get to apply discounts to Eric's interest in his closely all business where if it's the value to the owner, the value to Eric, typically discounts aren't appropriate.
Ron Seigneur (5m 10s):
So And I can expand on those, but that's at least the initial ground rules.
Ryan Kalamaya (5m 14s):
Yeah. So can you get into some of the characteristics that would maybe be different between investment value that would be representative of fair market value? So like you mentioned the I mean, what are the kind of characteristics of a seller and a buyer that is kind of assumed in the fair market value, hypothetical or premise of value?
Ron Seigneur (5m 37s):
Well, under the definition of fair market value, the expanded definition is the buyer and seller are hypothetical individuals. They're just the average buyer, average seller, each being knowledgeable of the pertinent facts and neither being under duress. It also assumes that there's an appropriate exposure of the business business or the portion of the business to the marketplace that neither or under kind of a a time constraint, the value is defined in cash or cash equivalent. And that makes up the definition of fair market value. Kind of broadened out if you will, for the other elements of the definition versus investment value.
Ron Seigneur (6m 18s):
What's it worth to the specific individual And? I like to, in the context of Family Law, I like to say what is Eric willing to pay into the marital estate to retain the benefits of the ownership of his business or his professional practice? And it's what are his motivations? you know, cuz he may have certain client relationships, vendor relationships, he may have motivations, he has a certain tax status that's unique to him where a hypothetical buyer is kind of like in an average tax position if you will.
Ryan Kalamaya (6m 52s):
Right. And Ron, what's your observation about Eric in terms of what's he gonna be arguing investment value or fair market value in the Divorce
Ron Seigneur (7m 2s):
Likely arguing fair market value, particularly if, if his ownership is less than a controlling interest because under the definition of fair market value for a minority ownership, that being less than a controlling, which is typically 50% absent voting arrangements, you get to take discounts. Discounts for lack of marketability. The fact that it's a closely held business as compared to a publicly traded security and a discount for lack of control, sometimes called a minority interest discount. Those are synonymous terms. But if Eric owns a 25% interest in Acme widgets for example, under fair market value, what would a hypothetical willing buyer pay for Eric's 25% interest in Acme widgets?
Ron Seigneur (7m 51s):
They're gonna say, gee, I don't have control And, I can't turn around and and liquidate my interest because it's a a closely held business, therefore I demand discounts. And those discounts can, it's subject to professional judgment that there's lots of resources on how you determine the magnitude of discounts. But a 2025, 30% discount for both lack of marketability and lack of control is not inappropriate under a fair market value definition for a lack of a less than controlling interest.
Ryan Kalamaya (8m 23s):
We'll talk about those discounts cuz that is always interesting to me. But for Listeners, I just wanna kinda zoom out a little bit in the sense of just putting it into context because the reason that Eric would, if he's gonna get the business that he would argue for a fair market value is because there's going to be additional discounts and it's gonna be less on his side of the ledger or in his basket of goods that are gonna come out of his Divorce. And so that means that he offset or pay Melanie less. So he's always gonna argue the fair market value and but Ron, let me ask you, if Eric says listen Apple or Tesla or any of these companies publicly traded companies, that's a real business.
Ryan Kalamaya (9m 12s):
But this business the I run, it's a closely held business, I can't get anything for it. I'm not, it's just me, it's just goodwill. Can you explain for Listeners that may be thinking along the lines of Eric, you know about how Colorado views goodwill and just business closely held businesses just in general? Well
Ron Seigneur (9m 32s):
Ryan, now you've cracked the door open into another kinda hot area and that's goodwill in distinguishing what we call enterprise goodwill from personal goodwill. Some businesses and professional practices are highly dependent upon the, the individual or the individuals to bring the business in the door. The reputation is the individual. That happens a lot with Attorneys and doctors and and accountants for that matter. Where some businesses, it's the business itself that has value, it's the enterprise. We've created a brand and people know the brand and it's beyond kind of the individual or the individuals that own it. And there's lots of arguments and tools and methodologies to try to put a number on the goodwill.
Ron Seigneur (10m 18s):
It happens a lot for tax planning and financial reporting. It's all subject to a lot of professional judgment. But you know, in a business like Eric has, you're gonna look at saying how important is Eric to this business? If Eric gets hit by a bus, will the business survive? Will it take a hit, will it go on as it has before? And those are all things that as a business analyst we consider that as as part of the, the equation of trying to figure out what Eric's interest is worth.
Ryan Kalamaya (10m 46s):
Yeah, the short answer for Listeners is that those professional businesses, the lawyers going through a divorce, the doctors going through a divorce, the accountants, they will say, this is just, it's just me. And the way that Colorado views it is a little bit different than maybe some other states and kind of like the appreciation on separate property. And Colorado has a fairly progressive view on appreciation of separate property being considered marital. There's also a pretty progressive view in terms of valuing professional businesses with respect. So that's why you get into these arguments because a lot of times businesses will exist and we're valuing businesses in Divorce.
Ryan Kalamaya (11m 29s):
So Ron going on to the investment value versus fair market value. So investment value, your article kind of gives the overview and for Listeners there's a, the Seminole case is Thornhill and so sometimes people will say give me a Thornhill discount or something. And so can you explain Thornhill and what that did for you Ron as a business valuation expert, what happened, what you were doing before Thornhill and what you are doing now and and the issues that arise from Thornhill?
Ron Seigneur (11m 60s):
Well the short answer is Thornhill created more work for us cause it broadened the landscape for judicial officers in terms of being able to choose between fair market value and investment value prior to Thornhill the case law graph Martin Huffer, the three that I always think of always said, you know, the value of this business or this professional practice is the value to the owner, the investment value to the identified individual. And then along came Thornhill. Thornhill was a, a Divorce case in Grand Junction. Mr. Thornhill was the 70% owner of his business.
Ron Seigneur (12m 42s):
That was an oilfield services business. And the appraiser used fair market value and took a 35% discount for lack of marketability. Mr Thornhill 70% controlling interest. So that in and of itself is unique that you'd have a a 35% discount on a controlling interest versus a minority interest. Cause Mr. Thornhill owned a 70% interest. That case was appealed to the court of appeals and appeal to the Colorado Supreme Court that the trial judge did not dis abuse his discretion in allowing fair market value to be used.
Ron Seigneur (13m 24s):
It didn't opine on the magnitude of the discount, which is unfortunate because that discounts just way outta line with what we normally see. But so it, it allows the trial court now to say, gee we can use the Thornhill fair market value precedent or we can use the longstanding graph Martin Huff precedent of value to the owner. And it gives the trier of fact a broader range of discretion of kind of what value they wanna use for the business. Interest at issue
Ryan Kalamaya (13m 56s):
In essence, and correct me if I'm wrong Ron, but the marketability discount that 35%, so that is a 35% discount on what would've been just the normal investment value. But it was to essentially compensate the owner, Mr. Thornhill or in our kind of hypothetical situation, Eric for the lack of liquidity, the aspect that he would need presumably to have like a business broker and to sell the business and that there would be a commission with that and that he couldn't, you know, liquidate that business interest in the same way of a Apple stock or Tesla or something of that variety.
Ryan Kalamaya (14m 40s):
And so essentially there was this kind of phantom 35% interest, even though he may not ever sell, Mr. Thornhill may not have ever sold that oil and gas service business in Grand Junction. So is that one way to look at it and you know the result in 2008, which is what happened with Thornhill is now business valuation experts are routinely giving two numbers. So there's the fair market value number. If Eric and Melanie are going through a divorce, And I call up you Ron, And, I say hey we want you to be a joint expert. Can you value Eric wolf's business? Then what are you going to put in terms of your numbers?
Ryan Kalamaya (15m 22s):
Are you just gonna put one or are you gonna have the investment value and fair market value?
Ron Seigneur (15m 27s):
Well there's two things I'd like to address. One is the 35% discount in the lack of liquidity. Because even though Thornhill business was a closely held business as compared to an Apple or Tesla where You can call your broker and say, you know, I wanna sell my Apple stock and you know, put the money in my account within three business days, Thornhill is closely held. So Mr. Thornhill who, who had discretion at 70% to say I wanna sell, he would need to go find a broker and pay probably some professional fees. So there is indeed a liquidity discount that would be applicable for a controlling interest but that's typically a five or 10% discount because Mr.
Ron Seigneur (16m 6s):
Thornhill, even though it may take him a year or two to sell his oilfield business, he still gets the benefit of his ownership while he's putting it on the market. And you know, going through the process to get it sold to your second point, you call and say, gee Ron, we'd like you to value, you know Eric's business And I say, well what standard of value would you like me to use? And you say, well I don't know what's appropriate And, I go. It depends on what the court chooses to apply. So, and we're not gonna know unless we get an advanced ruling, which is highly unusual in Family Law for the judge to, you know, say, you know, I stipulate that we're gonna use x you know, standard.
Ron Seigneur (16m 47s):
I tell you I'll do it both ways. And then when we get to court, you know, we can, the judge now has the latitude to say here's senior's fair market value opinion and here's senior's, you know, investment value opinion.
Ryan Kalamaya (16m 60s):
The theme through your article, which I really do appreciate was that we have a messy situation right now and it's not, I don't think helpful to Eric and Melanie Wolf because it's good for a Divorce lawyer like me cuz I can argue if I'm representing Eric, I'm gonna argue for fair market value. If I'm Melanie I'm gonna be arguing for investment value. We don't really don't have any guidance from the court on when is appropriate to apply. and we get into these arguments about, well I've seen this judge do this in this case and I've seen this judge do that. And you don't really know, you know, if you I mean I know my judges cuz I practice in limited areas very, you know, intimately And I have a pretty good idea.
Ryan Kalamaya (17m 46s):
But what are the things that parties and Family, Law, Attorneys and judges can do to kind of reduce those arguments or to overcome some of those disagreements? Ron?
Ron Seigneur (18m 0s):
Well they can agree on the standard of value to be applied in advance of engaging, you know, evaluation professional to be involved saying we're going to use, you know, investment value for this particular assignment and have at it now. you know, and typically I, I've seen that happen but normally it's like the judges like the discretion of being able to push the number one way or another to kind of, it's a court of equity as I, I'm reminded continually And, I'm sure you are too. And they're trying to get to an equitable result and sometimes we're not quite sure how they determine what equity is in the final analysis.
Ryan Kalamaya (18m 43s):
This episode is brought to you by our law firm Kalamaya Goscha Amy And I describe our law firm as an innovative and ambitious trial team that pushes the boundaries to discover new frontiers in family law, personal injuries and criminal defense in Colorado. We currently have offices in Aspen, Glenwood Springs, Edwards Denver and Boulder. if you wanna find out more, visit our website Kalamaya dot law. Now back to the show. What instances do you think a judge it's appropriate to use investment value versus fair market value? Can you give our Listeners some instances when you apply different standards of value?
Ryan Kalamaya (19m 28s):
Yeah,
Ron Seigneur (19m 29s):
I think that one of the issues is if there isn't any evidence of a impending sale of the business that the property spouse, the owner of the business is gonna continue to own it and run it and it's gonna be a going concern, it's just gonna continue on as it has in the past. you know, it's that continuing ownership interests that provides the value to that individual. And you know, unless there's an eminent sale to me that is strong evidence that you know, the value to that particular individual at their tax rate ought to be what's appropriate to apply.
Ryan Kalamaya (20m 7s):
And can you give a Listeners, can you talk maybe a little bit, we've talked about the marketability discount, the 35%, you know when I'm arguing for Eric Wolf, I love Thornhill because I mean that is an extraordinary rate when you consider it to kind of Shannon Pratt or some of the other valuation resources guides that exist out there on Valuations, 35% is extraordinary but what things go into, for example, lack of control or a minority discount. Can you give us kind of some different examples of Eric Wolf if, if he owns 51% of a condo in Florida with his friends, is that different than he owns a 10% interest with his family partnership or you know, he's the CEO of a company that has 90%.
Ryan Kalamaya (20m 57s):
Can you kind of walk us through some of the things with respect to the minority discount? Yeah,
Ron Seigneur (21m 2s):
I'll use an example to answer that. Let's say you're valuing a a 2% interest in a business. Somebody only owns 2%, but the other two owners each own 49%. All of a sudden your 2% interest is night and day to either of the 49% owners that they'd be willing to pay a premium for your 2% because maybe they don't like the other 49% owner. It could be a family member, it could be anybody. But you know, if I can buy your 2% now all of a sudden I'm the controlling person with 51 And. I can make it difficult for the the 49% owners. So now if you're 2% owner and you know you're one of 52% owners, then you know nobody in the other 2% pool is gonna be willing to pay you much.
Ron Seigneur (21m 51s):
Cuz gee I go from 2% to 4%, you know, no big deal. So that's one way to kind of, you can't look at it in the vacuum and a lot of it has to do with kind of what's the marketability of the interest. There's some types of businesses that are I mean if you put it up for sale people would buy it. Others it's like eh, you know, it's, that's an old entire thing and it's on its way out and you know we're not gonna pay you a premium for it,
Ryan Kalamaya (22m 17s):
Right? So if it's an estate planning lawyer, those practices generally will, there's a market for those because you know, they have existing client relationships, they're generally longstanding relationships and it's gonna be different than, you know, a firm that is, you know, like my firm that does personal injury, Family, Law and criminal defense where there's a fair amount of turnover and if there's no indication of that there's gonna be a sale. Is that run where you're looking at more like an investment value, you know, for the kind of practice like, you know, my firm versus like an estate planning attorney that you know is maybe 50 years old that's been talking about succession and you know, that has done some preliminary analysis on like selling his or her law firm.
Ron Seigneur (23m 9s):
Great question Ryan and it kind of delves into an area that is an area of focus for us because I was a legal administrator back in the 1980s for about seven years with a 50 attorney firm and have worked with a number of firms and valued a, a number of law firms for various PURPOSES, but in a state planning firm has a file room full of files waiting to go through probate and it's a money machine cuz of you know, the what's in the file room versus like you said, someone that's, you know, a criminal law attorney that you know I wanna hire, you know that person because that's the best person to do, do this. And I won't take a, you know, I won't take a second line.
Ron Seigneur (23m 50s):
So the first practice has a lot of goodwill, you know, value associated with the files. The second, it's like all in the individual and when that individual goes, so goes the value proposition.
Ryan Kalamaya (24m 1s):
Yeah, And I think they, you know, a c or a tech executive in Boulder, if Eric Wolf, if he's got a company that is a crypto business or a cybersecurity and it's clear that the ultimate goal is to be acquired or to sell do an ipo, that's gonna be different than if he's an anesthesiologist that gets, you know, the country club and his car and all of these value, you know, added things, these perks, these fringe benefits and there's just no indication that there's ever gonna be a sale of that interest in whatever that medical practice is.
Ryan Kalamaya (24m 42s):
And so are those kind of examples of when it might be appropriate to use a fair market value for the kind of tech executive that, you know, there might be a sale and they've been talking about it versus you know, the doctor that is more likely gonna be an investment value or the value to the owner. you
Ron Seigneur (25m 0s):
Know, the anesthesiologist, you're gonna take a close look at what that person's being paid in relation to their peer group pay to see if there's anything above and beyond kind of their peer group compensation that might be evidence of profits from maybe a, a larger anesthesiology practice versus the tech guy, you know, the value might be the payoff that's kind of already targeted that we're gonna build this up and and sell it. So the whole valuation kind of mindset from our end kinda is different. you know, different things are in play. Reasonable compensation for the owner employee is always with either of those two examples is always at play where we're gonna be looking at what's that anesthesiologist, how hard are they working, what are they getting paid for their years of experience in the geographical area that they serve and any specialty designations in relation to kinda what they're actually earning to see if there's some profit above and beyond their, the value of their services.
Ron Seigneur (26m 2s):
And that's always just an important part of the, you know, the analytical process if you will. Yeah.
Ryan Kalamaya (26m 7s):
And for Listeners, generally speaking, there's these professional decisions that are made by people like Ron where they'll say this is the discount and you heard him talk about opine on different discounts and then, but always reasonable compensation because Ron, what happens to the business valuation when that reasonable compensation is 500,000 for Eric Wolf compared to 250,000? Just as a general matter
Ron Seigneur (26m 34s):
When you're saying Eric's earning 500,000 and his peer group is two 50,
Ryan Kalamaya (26m 39s):
Well if you determine his reasonable compensation is 500,000 compared to 250,000, what does that do to the value of the business just between that decision between 500 and $250,000?
Ron Seigneur (26m 53s):
Well it means that there's no profit to the enterprise that it's all, you know, Eric's potentially being overpaid for his services, but if the true value of Eric is you know that amount and he's not receiving that, then you know there's nothing left in the business in terms of a value proposition,
Ryan Kalamaya (27m 11s):
Right. Generally speaking, the higher the reasonable compensation for the party and the Divorce Eric Wolf, they'll lower the business valuation cuz it just means that there's less profits. And so Eric is always arguing, ah, my compensation should be higher, it should be higher. And they're always pushing you. So what are the things Ron, just kind of switch gears a little bit about volatility, I mean right now as we're recording this, there's a lot of volatility in the market and the economic climate. What are the challenges and how do you address those as a business valuation expert when you've got these uncertainties on, you know, what premise of value do you even start with, but then even taking it a step further, how do you, you know, reflect the volatility and how does that come into play with your valuation OPINIONS?
Ron Seigneur (27m 59s):
You know, the best way for me to answer that is with everything that's happened, the pandemic pause and supply chain disruption and even what we're currently experiencing with, you know, inflation, it's made historical activity for a lot of businesses inappropriate to use as the primary framework to value the business. and we end up using more of a forward looking methodology then relying on historical financials and tax returns to calculate our values. But it's interesting that the courts have always been reluctant to use forward looking models, discounted cash flow, let's project out what the business will earn, let's duct out reasonable compensation for the owner employee, figure out what profit is left over and present, value that back to today at a appropriate risk adjusted rate as an indication of the value of the business above and beyond the service of the owner employee.
Ron Seigneur (29m 0s):
Now we like that because today it's becoming a more useful model because we can't look at, you know, valuation multiples from databases that we have because they're just obsolete. They're, you know, they're no longer relevant because of pandemic disruption and so on. The courts are slowly coming around to embrace forward looking models because they understand that it gets to a better result, at least a more supportable result. Not withstanding that it requires speculation into the future. you know, how's this business gonna perform in the future speculation of what tax rates are gonna be appropriate in the future versus just looking at five years worth of tax returns and waiting those, you know, 5, 4, 3, 2, 1.
Ron Seigneur (29m 47s):
That's the way it was done when we had like a stable economic environment for, you know, the luxury of 15 to 20 years until maybe three or four years ago. But our whole world has changed as valuation practitioners where we're being called upon in many venues well beyond Family Law to do more forecasting, projecting present value analysis to come up with our valuation OPINIONS.
Ryan Kalamaya (30m 11s):
Yeah, and maybe to highlight that would be kind of a scenario where Eric Wolf, if he's a mortgage broker and he's just crushed it in 2021 and 2020 cuz real estate and interest rates were really, really, really low. And then the Fed starts raising interest rates and now mortgages are at, you know, a historic high or at least you know, recent history high and the mortgage refinance, the originations on mortgage, if he's a mortgage broker, they have completely dried up. So to your point, Ron, it's saying, all right, Eric, let's look into the future because if we look at what Eric earned over the last five years or you know, last year, last two years, it's just not that was an aberration or it's not gonna be a real good predictor of what he's gonna earn in the future.
Ron Seigneur (31m 1s):
Ryan the example of a mortgage broker is, is an excellent example of somebody, like you said, if you look at past performance, they're just knocking it down now all of a sudden they've just run into a wall, you know, where their business is coming to a in an abrupt may not stop completely, but it's, you know, the future is not anywhere like what the past is indicates.
Ryan Kalamaya (31m 23s):
Well, I think a lot of people listening to this, it's like, well what are my takeaways? What can I do if I'm Eric, Wolf, And, I'm a mortgage broker, am I just screwed? Because you know, the Colorado first looks at personal goodwill and then there's no real guidance and this is just gonna be fodder for a bunch of lawyers and experts and everything. So what, you know, our takeaways for Eric, what were things that he could do to mitigate his risk? And you know, maybe as part of that You can talk about your financial expert guide for Family, Law judges and Attorneys that you guys are finalizing.
Ron Seigneur (31m 56s):
Well thank you for that reference. With Eric being, using an example of being a mortgage broker, there's always gonna be, well, how long is this disruption going to last? At some point we're gonna get back to, you know, the real estate industry is not gonna go away. People buying and selling houses is not gonna go away. Interest rates will moderate. So there has to be some kind of understanding of, you know, how long this period of extreme volatility in that particular sector is gonna last as part of the kind of the valuation equation if you will. But to talk a little bit about the book that we're publishing, it's called the, the Financial Expert Guide for Family, Law Judges and Attorneys.
Ron Seigneur (32m 39s):
and we have what's called the Colorado edition that's been out for a couple of years, but we're just in the process of finalizing the national edition of that book that we hope to have out by the first quarter of next year. The three authors are myself, John Tatlock, who's a Family Law attorney here in town, and Kevin Yiannopoulos, who's another valuation professional like myself based in Tucson. And it's gonna be published by business Valuation Resources and it's intended to be a, a resource for the less experienced Family Law practitioners. And frankly, a lot of judges that, you know, a lot of the judges on the bench these days are coming, they're assistant das that know everything about prosecuting a dui, but when it comes to how do we value Eric's, you know, closely held business interest, it's like they're lost in the haze.
Ron Seigneur (33m 29s):
So we talk about standards of value, methodologies, discounts, you know, all the types of things that we as valuation practitioners need to do to render a credible opinion on the value of a business.
Ryan Kalamaya (33m 42s):
Yeah, and I mean I used to be a DA and it took me a while to understand some of these issues. And I was fortunate to have people like you Ron that guided me. you know, experts, I mean Family, Law, Attorneys, they can't know everything. But I think for Eric, the point is to make sure if there is a business involved, to make sure that they have an attorney that understands, you know, some of these issues and can persuasively present their case, but also either to have a joint expert and potentially a consulting expert. We've had various Episodes on joint valuation experts and we'll have some of those referenced in the show notes, the kind of strategy involved.
Ryan Kalamaya (34m 24s):
But really to have someone like you Ron that is looking over the, you know, someone's shoulder and they, they know that things are handled appropriately because there are some joint experts that could just use a five year average on a mortgage broker business. And then you kind of get into the arguments and it's not as if Eric is totally screwed because he does have options. It just depends on what the original kind of valuation, how he can work out with Melanie and her attorney if they can come to an agreement on, you know, a premise of value and to try to really narrow those issues. But I think that the point of this episode is to educate Eric and other, especially less experienced Attorneys about the kind of various landmines that exist out there when it comes to valuing closely held businesses and to make sure that they have the resources.
Ryan Kalamaya (35m 19s):
And it could be the financial expert guide or your, you know, service or somebody you know, like you coming to their side to kind of help guide them, whether it be questions to ask at trial or to push a joint expert to really kind of oversee that. But I think a, a lot of people come into Divorce, especially people you know, like an Eric Wolf that we've kind of referenced and they just are not naive, but you know, they're in for a rude awakening because there are a lot of arguments and uncertainty, which is the point of your article.
Ron Seigneur (35m 52s):
Well, I was privileged to be asked to submit the article and it went through a pretty rigorous editorial process. And I did get a call because I talk about a particular case where the standard of value was front and center as the key issue between me and the opposing expert. And I tried to appropriately sanitize it, but I did get a call from the, this was an arbitration. I did get a call from the arbitrator after I published the article and he was laughing, he was saying I was totally on point, but he was able to kinda see who I was talking about. So I guess that was not a bad thing. But. yeah, it was a real life example.
Ryan Kalamaya (36m 33s):
Yeah, no And, I have actually an article coming out in the Colorado lawyer in January in that the editorial process is, as you say, rigorous, but Ron really appreciate the time. For people that may want to learn more about You, can you give Listeners what's the best way to get in touch with you and find you if they have any other questions on valuation. And you know, you might explain to Listeners you do consulting in particular on cannabis industry and your firm does. So can you maybe, you know, sign off with giving an overview of other services that your firm provides and where they can find
Ron Seigneur (37m 5s):
You? Yeah, absolutely. Ryan, thank you for that. Our website is cpa value.com, one word CPA value.com. You can go there to find information on our firm and way to get in touch with me. We have another website, fin expert Divorce dot com, F i n expert Divorce dot com, which is a website for our book, the Financial Expert Guide, so You can find information on that. I've been a licensed CPA here in Colorado since 1981, and a founder of a CPA firm that we do, you know, 2000 tax returns. I have a partner that has a very unique specialty in animal hospitals and veterinary practices. He has about 80 veterinarians in animal hospitals.
Ron Seigneur (37m 45s):
So that's kind of a unique specialty for our firm. And as you said, we've kind of gotten into the cannabis space where we do a lot of valuation around the country on cannabis licenses, dispensaries, cultivation facilities. I just got a call earlier today to value a consumption lounge license in Las Vegas. And I'm just, cannabis is like valuation on steroids where, you know, we take everything I've learned over the last three decades and now, you know, put it in the cannabis industry and it's just, it's absolutely fascinating. So I'm having fun with that. Well
Ryan Kalamaya (38m 18s):
Get ready for the magic mushroom psilocybin gold rush here in Colorado. I think you, you might be seeing some businesses crop up around that, but Ron, we'll have links in the show notes. And thank you everyone for joining us on Divorce, Altitude and Ron. Thank you. Appreciate it. Thank you Ryan. Hey everyone, this is Ryan again. Thank you for joining us on Divorce at Altitude. if you found our tips, insight, or discussion helpful, please tell a friend about this podcast. For show notes, additional resources or links mentioned on today's episode, visit Divorce at Altitude dot com. Follow us on Apple Podcasts, Spotify, or wherever you listen in.
Ryan Kalamaya (38m 59s):
Many of our Episodes are also posted on YouTube. You can also find Amy And me at Kalamaya dot law or 970-315-2365, that's K A L A M A Y A.law