By Joseph C. Hassan, CFA, ASA and Mark E. Lingerfield, ASA, MPI
In the uncertainty of this social distancing economy and volatile equity and debt markets, how should business owners and professionals of private companies think about company value and the impact on estate planning and/or corporate planning initiatives?
In this article, we consider the difference between “price” and “value” which may assist C-suite executives or business owners with internal planning efforts. In other words, it is next to impossible to try to “time the market” in making business or estate planning decisions. However, understanding how volatility, risk and business fundamentals affect company value can help managers make appropriate decisions.
In 2007 to 2009, we saw record oil prices, the S&P 500 top 1,500 points (amazing at the time), real estate values were peaking, and a high level of consumer sentiment. The subsequent declines in the equity markets hit nearly everyone by surprise as the sub-prime debt market collapsed and we came to grips with the realization that a severe economic recession and financial crisis was upon us. With widespread uncertainty around the future, markets experienced significant daily volatility. To some extent, the mental and emotional stresses resulting from the financial crisis and Great Recession (as well as shifts in the way broad industries now operate) continue to linger. As a society, we have some level of anxiety remaining from the pandemic and a looming recession, which is important to consider as we look to understand the current environment.
MPI, a prestigious national consulting firm founded in 1939, specializes in business valuation, forensic accounting, litigation support and corporate advisory work. MPI conducts every project as if it is going to face the highest level of scrutiny, and its senior professionals have extensive experience presenting and defending work product in front of financial statement auditors, management teams, corporate boards and fiduciaries, the IRS, other government agencies, and in various courts.
Please visit www.mpival.com for more information on our valuation and advisory services.
Family Enterprise USA advocates for American Family business. We help family businesses communicate their challenges and contributions to American economic freedom to Legislators. We represent all American family businesses; not just specific industries and provide research to enhance the opportunity for success. We help family businesses continue to establish their unique business legacy. Family Enterprise USA is a 501(c)(3) non-profit organization.. Family foundations can donate.
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