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Understanding Business Valuation: A Practical Guide to Valuing Small to Medium Sized Businesses, 4th Edition


Written by Gary Trugman, Understanding Business Valuation: A Practical Guide to Valuing Small-to Medium-Sized Businesses, simplifies a technical and complex area of practice with real-world experience and examples. Trugman's informal, easy-to-read style covers all the bases in the various valuation approaches, methods, and techniques. Readers at all experience levels will find valuable information that will improve and fine-tune their everyday activities.

Topics include valuation standards, theory, approaches, methods, discount and capitalization rates, S corporation issues, and much more. Author’s Note boxes throughout the publication draw on the author’s veteran, practical experience to identify critical points in the content. This edition has been greatly expanded to include new topics as well as enhanced discussions of existing topics.

Gary R. Trugman is a Certified Public Accountant licensed in the states of New Jersey, New York (inactive), and Florida. He is Accredited in Business Valuation (ABV®) by the AICPA and is a Master Certified Business Appraiser (MCBA) as designated by the Institute of Business Appraisers Inc. He is also an Accredited Senior Appraiser (ASA) in business valuation by the American Society of Business Appraisers. Gary is regularly court appointed and has served as an expert witness in federal court and state courts in several jurisdictions, testifying on business valuation, business and economic damages, and other types of litigation damages.

Gary is currently the chairperson for business valuation education for the American Society of Business Appraisers and serves on its ethics committee. He was presented with the Volunteer of the Year Award by the AICPA in 2011 for outstanding service for furthering the goals of the business valuation profession. Gary has previously served on the AICPA’s ABV Examination Committee, the AICPA’s subcommittee working with the judiciary, the ABV credentials committee, the executive committee of the management consulting services division, and the business valuation and appraisal subcommittee. He is the past president of the Florida Institute of CPAs’ litigation and business valuation committee and was formerly on the New Jersey Society of Certified Public Accountants’ litigation services committee, business valuation subcommittee (past president), and matrimonial committee.
Gary is the former chairman of the ethics and discipline committee, formerly served on the qualifications review committee, and is the former regional governor of the mid-Atlantic region of the Institute of Business Appraisers Inc. He has received a Fellow Award from the Institute of Business Appraisers Inc. for his many years of volunteer work in the profession. Gary has also received an AICPA Hall of Fame Award for his service to the accounting profession in assisting in the accreditation in the business valuation process. Gary formerly served on the international board of examiners of the American Society of Appraisers. He is currently a faculty member of the National Judicial College and an adjunct professor at Florida International University.

Gary lectures nationally on business valuation topics. He is the author of several publications and courses published by the AICPA. He has also developed numerous educational courses, including, but not limited to, a six-day business valuation educational series and the seminar “Understanding Business Valuation for the Practice of Law” for the Institute of Continuing Legal Education. Gary also serves as an editorial adviser for the Journal of Accountancy and the CPA Expert and formerly for National Litigation Consultants’ Review and the CPA Litigation Services Counselor. He has lectured in front of numerous groups and has been published in the Journal of Accountancy, Business Valuation Update, FairShare, and the CPA Litigation Services Counselor.
Gary was born in New York and received his undergraduate work from the Bernard M. Baruch College of the City University of New York. He was the first business appraiser in the United States to earn a master’s in valuation sciences from Lindenwood University. His master’s thesis topic was “Equitable Distribution Value of Closely Held Business and Professional Practices.” Gary’s appraisal education also includes various courses offered by the Institute of Business Appraisers, the American Society of Business Appraisers, the AICPA, and others. He has taught federal income taxation at Centenary College, financial statement analysis in the master’s degree at Lindenwood University, and several topics at the AICPA National Tax School in Champaign, Illinois. He is a member of the Institute of Business Appraisers, the American Society of Appraisers, the AICPA, the Florida Institute of CPAs, and the New Jersey Society of Certified Public Accountants.

Introduction xix

Steps of an Appraisal xxi

Notation System Used in This Book xxi

Chapter 1 Overview of Business Valuation 1

Chapter 2 Business Valuation Standards 17

Chapter 3 Getting Started 61

Chapter 4 Appraisal Principles and Theory 101

Chapter 5 Data Gathering 117

Chapter 6 Data Analysis 157

Chapter 7 Statistics for Valuation and Economic Damages 223

Chapter 8 Developing Forecasts for Business Valuations and Economic Damages 237

Chapter 9 The Market Approach--Part I 285

Chapter 10 The Market Approach--Part II 347

Chapter 11 The Asset-Based Approach 387

Chapter 12 The Income Approach 409

Chapter 13 Discount and Capitalization Rates 441

Chapter 14 Premiums and Discounts (Valuation Adjustments)--Part I 501

Chapter 15 Premiums and Discounts (Valuation Adjustments)--Part II 531

Chapter 16 Revenue Ruling 59-60 621

Chapter 17 The Valuation Report 633

Chapter 18 Valuation of Pass-Through Entities 661

Chapter 19 Valuation in Financial Reporting 691

Chapter 20 Valuing Intangible Assets: An Overview 711

Chapter 21 Estate and Gift Valuations 751

Chapter 22 Divorce Valuations 775

Chapter 23 Professional Practice Valuations 841

Chapter 24 Shareholder Disputes 907

Chapter 25 My Favorite Court Cases 965

Chapter 26 Economic Damages 1001

Index 1117



Appendix 1 AICPA Statement on Consulting Services Standards 1

Appendix 2 ASA Standards

Appendix 3 NACVA Professional Standards

Appendix 4 International Glossary of Business Valuation Terms

Appendix 5 SSVS 1 Appendix C

Appendix 6 Revenue Ruling 59-60

Appendix 7 Revenue Ruling 65-192

Appendix 8 Revenue Ruling 65-193

Appendix 9 Revenue Procedure 66-49

Appendix 10 Revenue Ruling 68-609

Appendix 11 Revenue Procedure 77-12

Appendix 12 Revenue Ruling 77-287

Appendix 13 Revenue Ruling 83-120

Appendix 14 Revenue Ruling 85-75

Appendix 15 Revenue Ruling 93-12

Appendix 16 Technical Advice Memorandum 94-36005

Appendix 17 Private Letter Ruling 91-50001

Appendix 18 Business Valuation Resources