Hitchner James, Mard Michael. Financial Valuation Workbook

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(f) Inventory

(1) Accounting method used to calculate inventories

(2) Trend in level of inventories and turnover rate

(3) Obsolete inventory and the amount paid for it

(g) Other current assets

(1) Other current assets

(2) Current assets not related to the business, if any

(h) Fixed assets

(1) Major ﬁxed assets

(2) Depreciation calculations for book and tax purposes

(3) Capital budget for the coming years

(4) Types of ﬁxed assets needed in the future

(5) List of excess assets

(i) Notes receivable

(1) Names and terms (if due from officers and affiliates, comparison of

terms to market rates)

(j) Other assets

(1) Long-term

(k) Notes payable

(1) Names and terms of vendors

(l) Accounts payable

(1) General terms of purchase of goods and services

(2) Trend in payables and turnover ratios

(m)Taxes payable and deferred taxes

(n) Other accrued expenses

(o) Long-term debt

(1) Names and terms (if secured, state asset(s) used as security)

(p) Mortgage notes payable

(1) Terms and collateral

(q) Any contingent liabilities

4. Income Statement Review

(a) Approximate annual sales volume

(b) Sales

(1) Reason for changes in sales over the past ﬁve years

(2) Attribution of growth in sales

i. unit volume

ii. inﬂation

(3) Comparison of growth rate in sales to other items on the income

statement

(4) Projections for the current year and beyond

(5) Basis for projections

(1) Key factors which affect cost of goods sold

(2) Changes in accounting procedures, if any

(d) Gross proﬁt margin (GPM)

(1) Changes in GPM for the last ﬁve years (price increases, cost increases,

inventory write-downs, etc.)

162 CHECKLISTS

(e) General and administrative expenses

(1) Major expense items of the company

(2) Fluctuations in expenses over the last ﬁve years

(3) Nonrecurring expenses included in the totals

(f) Other income/expense

(1) Sources

(g) Taxes

(1) Federal tax rate

(2) State tax rate

(h) Hidden or intangible assets, such as

(1) Patents

(2) Favorable leases

(3) Favorable ﬁnancing arrangements

(4) Number of recurring, stable customers

(5) Employment contracts

(6) Copyrights

(7) Long-term customers’ contracts

(8) Trademark

(9) Unique research and development

(10) Highly trained staff in place

(11) Undervalued securities or other investments

(i) Key liabilities

(1) Commitments for new buildings or machinery

(2) Long-term loans outstanding and terms

Disclaimer Excluding Any Warranties: This checklist is designed to provide guidance to analysts, auditors, and man-

agement, but is not to be used as a substitute for professional judgment. These procedures must be altered to ﬁt each

assignment. The practitioner takes sole responsibility for implementation of this guide. The implied warranties of mer-

chantability and ﬁtness of purpose and all other warranties, whether expressed or implied, are excluded from this trans-

action and shall not apply to this guide. The Financial Valuation Group shall not be liable for any indirect, special, or

consequential damages.

Management Interview Financial Review 163

164 CHECKLISTS

CHECKLIST 5-17 Management Interview

Accounting Practice

Date: ____________________

Exact Practice Name: ____________________________________________________

Address: _______________________________________________________________

_______________________________________________________________

Phone: __________________________

Analyst/Interviewer: _____________________________________________________

The objective of this management interview is to provide us with operational infor-

mation that will aid us in the valuation of your practice. We will keep the informa-

tion conﬁdential. Describe the following to the best of your ability on a separate

sheet of paper, with reference to each item number. If some items are not applica-

ble, please indicate N/A.

1. Interviewees

Name

Title

(a) _____________________________ _________________________________

(b) _____________________________ _________________________________

2. Name, Address, and Telephone Number of the Business Attorney

3. Accountants

(a) List key personnel with title, and approximate annual compensation (with

bonuses listed separately)

Name

Title Compensation Bonus

(1) ______________ ________________ _____________ ____________

(2) ______________ ________________ _____________ ____________

(3) ______________ ________________ _____________ ____________

(4) ______________ ________________ _____________ ____________

(5) ______________ ________________ _____________ ____________

(b) Abbreviated curriculum vitae of each accountant, including age, education,

specialty certiﬁcation, and unusual experience

(d) Life insurance in which the practice is the beneﬁciary

(e) Typical week for the average partner, including the percentage of time spent

in the following areas

(1) Directly billable

(2) Administrative

(3) Promotion

(4) Civic affairs

4. The Practice

(a) If not correct above, exact name of the practice

(b) Date practice established

important dates, previous locations, etc.

(d) Current organizational chart

(e) List the management team including current title, age, length of service,

background, annual salary, and bonus of each person for the current year

and the last two years

(f) List all personnel (other than accountants and the management team), stat-

ing the title/function and compensation of each

(g) List board of directors by name and title, including occupation for outside

members

(h) Growth trends, revenue, and operating capacity (billable hours)

(i) Changes in accounting services being considered

(j) Practice sensitivity to seasonal ﬂuctuations (e.g., does the practice have a dis-

proportionate tax practice)

(k) Sales and marketing strategy

(l) Office facilities, including

(1) Any land owned

i. Acreage

ii. Original cost

iii. Approximate fair market value

(2) Buildings owned

i. Age and condition

ii. Original cost

iii. Approximate fair market value

iv. Fire insurance amount

v. Square feet

(3) Furniture, ﬁxtures, and equipment (FF&E) (Since the FF&E schedule has

been requested in our valuation information request, there will be no

need to duplicate the listing here. What is requested is a discussion of the

future plans for signiﬁcant purchases of FF&E.)

(4) Library

i. Description by major service and/or groups of works

ii. Original cost

iii. Replacement cost

iv. Unique volumes, if any

5. Other Pertinent Information About the Practice

Disclaimer Excluding Any Warranties: This checklist is designed to provide guidance to analysts, auditors, and man-

agement, but is not to be used as a substitute for professional judgment. These procedures must be altered to ﬁt each

assignment. The practitioner takes sole responsibility for implementation of this guide. The implied warranties of mer-

chantability and ﬁtness of purpose and all other warranties, whether expressed or implied, are excluded from this trans-

action and shall not apply to this guide. The Financial Valuation Group shall not be liable for any indirect, special, or

consequential damages.

Management Interview Accounting Practice 165

166 CHECKLISTS

CHECKLIST 5-18: Management Interview

Insurance Agency

Date: ____________________

Exact Business Name: ___________________________________________________

Address: _______________________________________________________________

_____________________________________________________________

Phone: __________________________

Analyst/Interviewer: _____________________________________________________

The objective of this management interview is to provide us with operational infor-

mation that will aid us in the valuation of your business. We will keep the infor-

mation conﬁdential. Describe the following to the best of your ability on a separate

sheet of paper, with reference to each item number. If some items are not applica-

ble, please indicate N/A.

1. Interviewee(s)

Name

Title

(a) _____________________________ _________________________________

(b) _____________________________ _________________________________

(d) _____________________________ _________________________________

2. History of the Business

(a) Brief but complete description of the start-up of business

(b) Date business started

3. Name, Address, and Telephone Number of the Business Attorney

4. Name, Address, and Telephone Number of the Business Accountant or

Bookkeeper

5. Owners

(a) List all owners by class of stock and percentage owned

Name

Class of Stock Percentage

(1) _________________________ _________________ ______________

(2) _________________________ _________________ ______________

(3) _________________________ _________________ ______________

(4) _________________________ _________________ ______________

(5) _________________________ _________________ ______________

Management Interview Insurance Agency 167

(b) Job history and experience (i.e., resumes) of the owners

(d) Recent transactions in the common stock of the company

(e) Ownership and management perquisites

6. Personnel

(a) List all personnel, with title, length of service, age, and annual compensation

Name

Title LOS Age Compensation

(1) ______________ ________________ _____ _____ _______________

(2) ______________ ________________ _____ _____ _______________

(3) ______________ ________________ _____ _____ _______________

(4) ______________ ________________ _____ _____ _______________

(5) ______________ ________________ _____ _____ _______________

(b) Number of part-time employees

earned

(d) Adverse impact on business if sudden loss or withdrawal of any key

employee

(e) Copies of all noncompete agreements, if any

7. Real Property

(a) Describe the office facilities

(b) Provide a copy of the lease, if applicable

8. Furniture and Equipment

(a) Describe the furniture and equipment

(b) Provide a copy of the lease(s), if applicable

9. Insurance Carriers

(a) List any EDP terminals owned by insurance carriers that are utilized in the

agency

(b) Provide copies of all insurance carrier contracts

(d) List all carriers that have terminated contracts, the dates terminated, and

the amounts and types of coverage formerly provided in the last full year

of representation

(e) Provide the amount of the limit to settle claims, if any

10. Book of Business

(a) Describe the amounts of direct billed and agency billed

(b) Describe the amounts of property/casualty, life, and health premiums

168 CHECKLISTS

11. Policy Holders

(a) Attach a list of all policyholders by product line, the original years of cov-

erage, and if applicable, the years of termination, if available

(b) List the ﬁve largest policyholders, the amounts of premium, and descrip-

tions of coverage, including the original issue date

Issue Date Premium Coverage

(1) _____________ ________________ ___________________________

(2) _____________ ________________ ___________________________

(3) _____________ ________________ ___________________________

(4) _____________ ________________ ___________________________

(5) _____________ ________________ ___________________________

(d) Provide the amount of contingency commissions, the applicable carrier, and

the year earned

12. Financial Statements

(a) Provide complete ﬁnancial statements of the business for the last ﬁve years

(b) Provide corporate tax returns for the last ﬁve years

(d) Provide all photocopies of any buy-sell or other restrictive agreements

(e) Describe any hidden assets or liabilities. These would be items or beneﬁts

(or liabilities) to the agency that may not have been fully reﬂected in the

ﬁnancial statements. They would include such things as long-term policy-

holder contracts, lawsuits, or undervalued securities.

(f) Describe any extraordinary or highly unusual downturns or upturns to the

business

(g) Describe any unusual or nonrecurring or credits (debits) not evident on the

income statements

(h) List nonoperating assets that are included on recent balance sheets. These

would include assets not necessary in the day-to-day operations of the

business.

13. General Outlook (if not covered elsewhere)

14. Other Pertinent Information About the Business

Disclaimer Excluding Any Warranties: This checklist is designed to provide guidance to analysts, auditors, and man-

agement, but is not to be used as a substitute for professional judgment. These procedures must be altered to ﬁt each

assignment. The practitioner takes sole responsibility for implementation of this guide. The implied warranties of mer-

chantability and ﬁtness of purpose and all other warranties, whether expressed or implied, are excluded from this trans-

action and shall not apply to this guide. The Financial Valuation Group shall not be liable for any indirect, special, or

consequential damages.

Management Questionnaire Law Practice 169

CHECKLIST 5-19: Management Questionnaire

Law Practice

Date: ____________________

Exact Practice Name: ____________________________________________________

Address: _______________________________________________________________

_____________________________________________________________

Phone: __________________________

Analyst/Interviewer: _____________________________________________________

The objective of this management interview is to provide us with operational infor-

mation that will aid us in the valuation of your practice. We will keep the informa-

tion conﬁdential. Describe the following to the best of your ability on a separate

sheet of paper, with reference to each item number. If some items are not applica-

ble, please indicate N/A.

1. Interviewee(s)

Name

Title

(a) _____________________________ _________________________________

(b) _____________________________ _________________________________

(d) _____________________________ _________________________________

2. Name, Address, and Telephone Number of the Business Accountant or

Bookkeeper

3. Attorneys

(a) List key personnel with title, and approximate annual compensation (with

bonuses listed separately)

Name

Title Compensation Bonus

(1) ________________ _______________ ______________ ___________

(2) ________________ _______________ ______________ ___________

(3) ________________ _______________ ______________ ___________

(4) ________________ _______________ ______________ ___________

(5) ________________ _______________ ______________ ___________

(6) ________________ _______________ ______________ ___________

(7) ________________ _______________ ______________ ___________

(8) ________________ _______________ ______________ ___________

(9) ________________ _______________ ______________ ___________

(10) ________________ _______________ ______________ ___________

170 CHECKLISTS

(b) Provide an abbreviated curriculum vitae of each attorney, including age, edu-

cation, board certiﬁcation, and unusual experience

(d) Describe life insurance in which the ﬁrm is the beneﬁciary

(e) Describe a typical week for the average partner, including the percentage of

time spent in the following areas

(1) Directly billable

(2) Administrative

(3) Promotion

(4) Civic affairs

4. The Practice

(a) If not correct above, exact name of the practice

(b) Provide a brief history of the development of the practice, including date prac-

tice was established, past partners, important dates, previous locations, etc.

including current title, age, length of service, background, annual salary, and

bonus of each person for the current year and the last two years.

(d) Attach a list of all personnel (other than attorneys and the management

team) stating the title/function and compensation of each

(e) List board of directors by name and title, including occupation for outside

members

(f) Describe the growth trends, revenue, and operating capacity (billable hours)

(g) Describe changes in legal services offered that are being considered

(h) Describe practice responsiveness to seasonal ﬂuctuations (For instance, does

the ﬁrm have a disproportionate estate practice susceptible to northern resi-

dents?)

(i) Describe previous and future marketing and advertising plans

(j) Describe the office facilities including

(1) Any land owned

i. Acreage

ii. Original cost

iii. Approximate fair market value

(2) Buildings owned

i. Age and condition

ii. Original cost

iii. Approximate fair market value

iv. Fire insurance amount

v. Square feet

(3) Furniture, ﬁxtures, and equipment (FF&E) (Since the FF&E schedule has

been requested in our valuation information request, there will be no

need to duplicate the listing here. What is requested is a discussion of the

future plans for signiﬁcant purchases of FF&E.)

(4) Library

i. Description by major service and/or groups of works

ii. Original cost

iii. Replacement cost

iv. Unique volumes, if any

5. Other Pertinent Information About the Practice

(a) Any information that will add to (or detract from) the reputation of the

practice or any information about the practitioners that will have a similar

effect on the valuation.

Disclaimer Excluding Any Warranties: This checklist is designed to provide guidance to analysts, auditors, and man-

agement, but is not to be used as a substitute for professional judgment. These procedures must be altered to ﬁt each

assignment. The practitioner takes sole responsibility for implementation of this guide. The implied warranties of mer-

chantability and ﬁtness of purpose and all other warranties, whether expressed or implied, are excluded from this trans-

action and shall not apply to this guide. The Financial Valuation Group shall not be liable for any indirect, special, or

consequential damages.

Management Questionnaire Law Practice 171