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When You Collect Taxes, Be Sure to Remit Them in a Timely Fashion

Posted by & filed under Blog Articles, Forensic Accounting, Fraud, Fraud Deterrence.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence programs and forensic accounting services in Philadelphia and the Delaware Valley.

Almost every organization is responsible for collecting and remitting taxes. These taxes, which occur on the Federal, state, county or local levels, can include payroll taxes – such as income tax, Social Security tax, Medicare tax, and unemployment tax – as well as sales taxes, excise taxes, fuel taxes, and others.

“These taxes belong to the governmental taxing authorities,” said Certified Fraud Examiner David Anderson of the Philadelphia forensic account services firm of David Anderson & Associates, “and should not be used by the business at any time for any reason.”

He explained these tax types often are referred to as “trust fund taxes,” evoking the concept that the organization is holding the tax monies “in trust” for the government because they have been withheld from taxpayers by the business.

Some organizations that are experiencing cash flow or financial difficulties have used these funds for financing operations, Anderson said, instead of remitting the funds in a timely manner to the governmental taxing authorities.

Their logic, he said, usually is that if they can’t continue to operate, then they will have to lay off employees – which would cost the taxing authorities both payroll taxes and unemployment payments – and they will lose sales – which, similarly, would cost the authorities sales taxes, excise taxes and fuel taxes.

However, taxing authorities believe the taxes become their property the minute the organization withholds them from employees or collects them from customers, said Anderson.

The failure to remit these collected taxes when they should be, he said, can result in penalties and interest being charged to the organization.  In addition, such failure can trigger trust fund penalties of up to 100 percent of the unpaid taxes, a practice commonly known as the “100 percent penalties.”

Under these penalties, Anderson said, not only is the organization responsible for the unpaid taxes, but also any person – termed by the law as “responsible persons” – who can effectively control the finances or determine which bills should or should not be paid and when.

Under the law, he said, the term responsible person is very broad and can include employees and shareholders/partners, as well as others outside of the formal organization – including, potentially, sureties and lenders.  Additionally, taxing authorities don’t have to wait to see if they will be paid by the organization; they can, Anderson said, go after the responsible person at any time.

As if the 100 percent penalties aren’t enough, the fraud deterrence professional said, taxing authorities also can pursue criminal fraud complaints if they view that the owners – or officers, in the case of non-profit organizations – have used the unpaid taxes to benefit themselves.  This includes compensation, fringe benefits, expenses paid on their behalf, distributions or dividends, loan repayments, and retirement plan contributions.

A failure to remit taxes collected on behalf of governmental taxing authorities in a proper and timely fashion, Anderson said, can have significant and dire consequences.  One way to avoid this issue in the case of payroll taxes is to employ a professional payroll service to withhold and pay such taxes.

In addition, many of these same companies offer similar services for sales, excise, and fuel taxes.  Organizations in financial need should consult their professional advisors and other financial companies – such as lenders, factors, floor plan providers, etc. – in order to find other ways to finance the operations of their organizations without resorting to the improper use of collected and withheld trust fund taxes.

If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.

Retain Forensic Accountants Early for More Effective Litigation Support

Posted by & filed under Blog Articles, Company News, Expert Witness, Forensic Accounting, Litigation Support.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence, litigation support and expert witness testimony services in Philadelphia and the Delaware Valley.

A forensic accounting expert in Philadelphia or elsewhere in the U.S. often requires very specific, detailed financial documents for analysis before providing litigation support services and expert witness testimony during legal proceedings. The effectiveness of such a strategy, however, can be compromised if that expert is engaged late in the process.

“On some occasions, I have been brought on board after the legal team requested and received insufficient financial data from the opposition.,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides litigation support services and expert witness testimony in Philadelphia and the Delaware Valley.

“When I was retained late in discovery or even after discovery has closed,” he said, “I learned the only financial records counsel requested were income tax returns and bank statements. The attorneys believed those documents contained sufficient financial information for my analyses and reports. Unfortunately, they did not.”

Anderson, whose full range of forensic accounting services in Philadelphia and the Delaware Valley includes litigation support services and expert witness testimony in Philadelphia, notes that income tax returns contain only summary level information. For example, he said, sales revenue is shown as a single amount. No detail is provided concerning the dollar amounts or numbers of specific products or services sold.

“In one of my cases, counsel wanted to know how much was being paid to non-officer family members,” explained Anderson, a Philadelphia forensic accountant. “But counsel had obtained only the income tax return, which merely showed total wages and salaries paid to all employees, not to each individual. The tax return could not be used to answer the question.” Anderson said the attorney could have overcome this hurdle if detailed company payroll information had been requested during discovery.

In another case, explained Anderson, a forensic accounting expert in Philadelphia, counsel suspected that the majority shareholders were running personal expenses through the company – such as auto expenses, travel, meals, entertainment, etc. But again, because the income tax returns showed only summary level information, Anderson was unable to determine whether any of the expenses were of a personal nature.

“Had counsel asked for detailed general ledger information and copies of invoices supporting all expenses, I would have had the necessary information to conduct my forensic examination,” explained Anderson, whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley.

Bank statements also are frequently requested in discovery, but they too lack detailed information. The Philadelphia forensic accountant said bank statements seldom show deposit detail – what checks, cash and/or incoming wire transfers made up each deposit and from where the checks or incoming wire transfers came.

In addition, bank statements do not provide detail regarding checks written against the account – only check number, amount and date charged against the account, said Anderson, whose Philadelphia forensic accounting firm provides litigation support services and expert witness testimony in Philadelphia. Bank statements may show debits or credits posted against the account as well as cash withdrawals and transfers to/from the account, but with little detail.

Generally, the only real details contained in bank statements are for outgoing wires (showing to whom the wire was sent), for debit card purchases, and for recurring ACH (automated clearinghouse) payments, said Anderson, a Philadelphia forensic accountant.

“Attorneys can overcome bank statement shortcomings,” he said, “by requesting copies of all deposited items, including deposit slips; copies of all cancelled checks; copies of all documents supporting debits, credits, transfers to/from and withdrawals from the bank account; detailed general ledger information; and copies of invoices supporting each cancelled check.”

However, Anderson cautions, each case is different and carries with it its own unique set of circumstances. The best way an attorney can be sure he or she has requested the financial documentation necessary to generate the reports that will support the case is to retain the services of a forensic accounting expert early in the discovery process.

If you require the services of a forensic accounting expert in Philadelphia and the Delaware Valley for litigation support or expert witness testimony, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services. Company principal David Anderson is a forensic accounting expert in Philadelphia with more than 30 years of experience in financial and operational leadership positions. He is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst. Anderson also has provided expert witness testimony in the Greater Philadelphia area and served as a forensic consultant on both civil and criminal cases.

Maximize Cash Flow with These Forensic Accounting Strategies

Posted by & filed under Blog Articles, Company News, Forensic Accounting.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence programs, and forensic accounting services in Philadelphia and the Delaware Valley.

For many small businesses, it’s an ongoing struggle to keep enough cash on hand to finance operations, pay debts, and provide income to the owners. If your company could use some assistance in this area, an experienced forensic accountant in Philadelphia has several strategies to help maximize cash flow.

“Even the most organized and savvy small business owners can experience cash flow problems from time to time, said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. “There definitely are ways, however, you can squeeze cash out of sales, assets, and even business debts to maximize your available cash.”

Here are some of Anderson’s top cash flow recommendations:

  • Get cash up front from customers: Attorneys, consultants, and others do it. You should too, especially if the sale is for services, if you must purchase materials to fulfill the order, or if there is more than a month between the date the customer places an order and the product is delivered or service is completed, said Anderson, a forensic accounting expert in Philadelphia. Depending on the size and type of the order, you should ask for anywhere from 10 percent to 50 percent of the sales price up front, he said.
  • Offer customers a discount for faster payment: Many companies offer a one or two percent discount for payment within 10 days of the original invoice. Such an offer, Anderson said, can motivate customers to pay you quickly. Of course, you need to consider the impact of such discounts on your profitability and ensure that your sales price includes the impact of the discounts, he said.
  • Accept credit card payments: Some customers may not have adequate cash in their bank account to pay quickly, but they do have business or personal credit cards they can use, said Anderson, a forensic accountant in Philadelphia whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley. You’ll pay a small fee of about 3 percent to the credit card company, he said, but you’ll get paid faster by accepting credit card payments.
  • Stay on top of your past due accounts: How long do you let a customer’s account go past due before you pursue them for payment? The answer should be not at all, Anderson said. Consider establishing a policy of calling customers five days prior to the due date to remind them that the payment is coming due. And, wait no more than two days past the due date (allowing for the customer to have mailed the payment on the due date) to begin calling the customer, Anderson recommends. Remember, the squeaky wheel gets the oil, he said.
  • Consider factoring your accounts receivable: If your industry has payment terms that extend beyond 30 days from the invoice date, or if your sales are for relatively large amounts, consider selling your accounts receivable, or invoices, to a third party. By factoring your accounts receivable, your invoices are paid much faster, said Anderson, a forensic accounting expert in Philadelphia. Remember to consider the cost of factoring and how it impacts upon your profitability, since factors can charge a significant fee, he noted.
  • Squeeze more cash out of your inventory: When was the last time you analyzed your inventory to determine if you have too much of certain items, slow-moving items, or obsolete items? Consider discounting these items to turn them into cash. Or, Anderson said, you may prefer to sell slow-moving or obsolete items to liquidators or scrap dealers at drastically reduced prices. Sure, you won’t make much, if any, profit from selling these items (particularly the slow moving or obsolete ones), but they aren’t producing cash if they’re just sitting on the shelf, he said.
  • Do the same with your older fixed assets: Most businesses have an inventory of retired fixed assets that aren’t being used and are just taking up space. Consider selling these assets to liquidators or scrap dealers, said Anderson, a forensic accountant in Philadelphia. You’ll free up space and maybe some cash, too.
  • Negotiate longer payment terms with vendors: Have you ever had a customer ask to stretch out his or her payment terms? You are a customer, too, Anderson reminds business owners. It never hurts to ask, particularly when you won’t get paid by your own customer for 30 or more days, he said. In that scenario, it’s likely your vendor will understand and allow you to stretch out your payments.

“These are just some of the strategies that you can use to increase your cash flow and make it easier to keep your business going, pay your debts and keep your own income consistent,” said Anderson, a forensic accounting expert in Philadelphia.

If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.

Have You Completed Your Year-End Business and Personal To-Do List?

Posted by & filed under Blog Articles, Company News, Forensic Accounting, Fraud.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services including business valuation, fraud investigation, and fraud deterrence programs in Philadelphia and the Delaware Valley.

With the winter holidays fast approaching, most of us are looking forward to Christmas, Hanukkah, Kwanzaa, New Year’s Day, and other such events.  But as 2020 draws ever closer, we also need to focus on those important year-end financial activities to help ensure our business and personal financial health.

Here are some of the items leading Philadelphia forensic accountant David Anderson says should be addressed before the end of 2019:

Business

  • Have you finalized a budget for 2020? If not, there is still time.
  • Have you discussed with your tax accountant what you can do to maximize your business deductions for 2019?
  • Have you cleaned up your accounts receivable? This includes collection efforts on past due receivables.
  • Have you made sure all your 2019 payroll, sales, income and other taxes are paid or will be paid on time?
  • Have you scheduled an end of year inventory count (if you have inventory)? Have you made plans to dispose of old and/or non-selling inventory?
  • Do you have old fixed assets that have been removed from use, but are still on your premises? If so, you should make plans to dispose of these also.
  • Is all your software updated to the latest version? This should especially apply to your security and anti-virus software.
  • Are you fully staffed for the coming year? If not, do you have a staffing plan in place? Now is a great time to solicit and interview potential new employees.
  • Is your website current and updated? Have you removed employees, products, links, etc. that you no longer have?
  • Is your bank financing for 2020 in place? Have you spoken with your banker about getting the best rates and services?
  • Are all your insurances current and adequate (not too little or too much)?

Personal

  • Have you discussed with your tax accountant everything that needs to be addressed by the end of the year?
  • Have you made all your estimated payments for 2019 in amounts adequate to avoid penalties?
  • Have you maximized your retirement contributions for 2019? If not, there is still time to address these.
  • Have you reviewed the status of your retirement and non-retirement investments with your investment advisor and planned for any changes for 2020?
  • Have you reviewed your life, disability, long-term disability health, dental, vision, auto, homeowners, personal liability, etc. insurance with your insurance advisor(s) to make sure that you are adequately covered and have properly addressed the needs of your family and you?
  • Have you had your annual physical, dental, vision and other exams this past year? If not, you should schedule them as soon as possible.
  • When was the last time you updated your will, living will, and medical power of attorney agreements? You should review these with your attorney and other advisors and make the necessary changes as soon as possible.

The above list is not meant to be all encompassing, but rather serve as a reminder of the many items you may need to address before the end of the year.

I hope 2019 has treated you well both personally and professionally, and that 2020 will be a successful year for you.

If you require the services of a forensic accountant in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Valuation Analyst and a Certified Fraud Examiner in Philadelphia.

Is Your Bank Unknowingly Promoting or Enabling Fraud?

Posted by & filed under Blog Articles, Forensic Accounting, Fraud, Fraud Deterrence.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence, litigation support and expert witness testimony services in Philadelphia and the Delaware Valley.

Several frauds I have investigated during my tenure as a forensic accountant have been strikingly similar.  In each case, a trusted employee misappropriated funds by writing checks either to themselves or an associate. Management was unaware of the fraud largely because their bank had stopped providing paid, cancelled checks or copies.  When each fraud was finally discovered, the losses were significant because of the long duration of each employee’s scheme.

As regular readers of my column are well aware, a trusted employee is one who – by virtue of such factors as longevity with the company, past demonstrations of loyalty and/or hard work, and social and/or familial relationships with management – has earned a level of trust and faces less oversight than other employees.

Add to this the fact that many small businesses are unable to install the internal controls related to separation of duties – primarily because they lack enough knowledgeable and experienced employees to allow for separation of incompatible duties – and you can end up with an employee who can write checks, enter the paid check information into the company’s accounting system, and sometimes even perform bank account reconciliations.

Because the employee is trusted, management is less likely to closely monitor the employee’s activities.  These kinds of situations could lead to the trusted employee misappropriating funds which, because of the reduced likelihood of detection, could result in significant losses.

In the past, I recommended the owner or CEO (not the Controller or CFO because of the separation of duties and oversight issues) have the bank send the monthly bank statements directly to him/her so that he/she can review the paid checks (or copies) to identify any unusual payees (either in name, frequency of payment, or in amounts paid).

Beginning about 15 years or so ago, many banks stopped returning the paid, cancelled checks with the bank statements as a means of reducing operating costs.  Instead, they provided reduced size copies of the front of each paid, cancelled check.

However, even more recently, many banks also have stopped providing these check copies.  Instead, the banks give companies the means to access a copy of each paid check online.  Accessing each paid check online can be quite time consuming, especially when a company issues hundreds of checks each month.

As a result, it has become impractical for the owner or CEO to conduct this review.  In one instance of fraudulent activity by a trusted employee, the owner turned to his trusted employee to conduct the review, unaware that the trusted employee was the one writing the improper checks.

Given that banks have not been providing paid, cancelled checks or copies, here are some updated recommendations I am suggesting to small business owners:

  • Arrange to pay the bank to provide either paid, cancelled checks or copies (the fee will be much less than the potential fraud loss) so that the owner can review them; or
  • If your bank won’t provide such, consider changing banks to one that will provide either paid, cancelled checks or copies; or
  • Engage a reliable outside person, such as a forensic accountant, to regularly review paid checks online.

Additionally, I recommend the small business owner:

  • Establish a company policy, in writing, that fraud is wrong and will not be tolerated by the company. Additionally, the small business owner should have each employee read the policy statement and sign an acknowledgement that he/she has read and understood the company policy.
  • Let employees know that management is watching and has instituted fraud prevention measures (without going into detail regarding the specifics of the measures).
  • Hold periodic training sessions on spotting and reporting fraud.
  • Inform employees management will be conducting surprise audits of bank accounts (again, without going into detail regarding the specifics of when and how the surprise audits will be conducted).
  • Consider having a reliable outside person, such as a forensic accountant, perform bank account reconciliations.

The cost of implementing such measures will be much less than the potential fraud faced by not implementing them.  By instituting the above-mentioned anti-fraud controls, small businesses can significantly reduce the likelihood that the cessation of banks providing paid, cancelled checks or copies will facilitate fraud by trusted employees.

If you require the services of an experienced forensic accountant in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.

Termination, Discrimination Cases Can Benefit from Forensic Accounting Assistance

Posted by & filed under Blog Articles, Company News, Expert Witness, Forensic Accounting, Fraud, Fraud Deterrence, Litigation Support.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence programs, and forensic accounting services in Philadelphia and the Delaware Valley.

There are times when a forensic accountant may be asked to calculate damages for wrongful termination and employment discrimination lawsuits.

“Whether you are dealing with wrongful termination or employment discrimination, the methodology for calculating damages is similar,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides litigation support services and expert witness testimony in Philadelphia and the Delaware Valley.

“The key basis for calculating damages is the difference between what the plaintiff would have earned over his/her lifetime had the wrongful termination or employment discrimination not occurred, and the actual and expected earnings of the plaintiff after having experienced the wrongful termination or employment discrimination,” explained Anderson, a forensic accounting expert in Philadelphia and the Delaware Valley.

Anderson outlined the steps of the damage calculation this way:

  • To begin with, the date the damages started is determined. This typically is the date that the plaintiff was allegedly wrongfully terminated or the date that the employment discrimination allegedly began.
  • Next, the wage or salary rate and associated benefits as of the beginning date of damages are identified.
  • Then, these rates and benefits are extrapolated through the normal date of retirement, or another date if there is a reasonable basis to assume that the plaintiff would have retired earlier or later than normal retirement age.
  • This is followed by identifying the actual wage or salary rate and associated benefits earned by the plaintiff from the beginning date of damages until the date of the damages calculation.
  • The forensic accountant must then extrapolate these rates and benefits through the normal date of retirement, or another date if there is a reasonable basis to assume that the plaintiff would have retired earlier or later than normal retirement age.
  • Finally, the difference between the two different extrapolations are calculated.

Anderson, a forensic accounting expert in Philadelphia whose full range of forensic accounting services in Philadelphia and the Delaware Valley includes litigation support services and expert witness testimony in Philadelphia, said the extrapolations rely upon several assumptions, including:

  • What the expected career path of the plaintiff would have been had the wrongful termination or employment discrimination not occurred.
  • What the actual and expected career path of the plaintiff is due to the wrongful termination or employment discrimination. Typically, the wrongfully terminated person will have a period of unemployment and is likely to have to take a lower-level position or a position paying less, etc. Similarly, the person experiencing employment discrimination will either have a harder time finding employment or, if already employed, will have a slower or lower career path.
  • What the associated wage or salary and benefits growth rates would have been for each of the above.
  • What the associated benefits would have been for each of the above. This includes insurances, pension or profit-sharing benefits, 401-K contributions and company matches, etc.
  • What mitigating steps the plaintiff has taken or is expected to take to obtain employment, and the reasonableness of those steps. For example, if the plaintiff previously was a high-powered executive, what is the plaintiff doing to find alternative employment? Also, what is a reasonable amount of time for finding a new job? If the plaintiff has found a new job, is it comparable to what would be expected?
  • The rate to use to discount the differences back to present value. Please note that under Pennsylvania law, neither inflation-based wage increases nor discounting to present value are allowed.
  • Any applicable permitted interest on past differences.

Anderson, a forensic accountant whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley, including expert witness testimony in Philadelphia, said the forensic accountant/expert witness generally will rely on an associated report by a qualified employment and compensation expert regarding the expected career paths and associated salaries over time, unless the forensic accountant/expert witness also is a qualified expert in that area.

If you need help in calculating damages for wrongful termination or employment discrimination cases, or if you require the services of a forensic accounting expert in Philadelphia and the Delaware Valley for any other reason, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support services, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia with more than 30 years of experience in financial and operational leadership positions. He is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.  Anderson also has provided expert witness testimony in the Greater Philadelphia area and served as a forensic consultant on both civil and criminal cases.

Marketability and Control are Key Factors in a Privately Held Business Valuation

Posted by & filed under Blog Articles, Business Valuation, Company News, Forensic Accounting.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services including business valuation, fraud investigation, and fraud deterrence programs in Philadelphia and the Delaware Valley.

Under what conditions does $4 million divided by four NOT equal $1 million? When you are a 25 percent owner of a privately held business, sometimes the math just doesn’t work out the way you’d like it to.

According to David Anderson, of David Anderson & Associates – a Philadelphia forensic accounting firm that provides a full range of business valuation and other forensic accounting services in Philadelphia and the Delaware Valley – experts who are asked to determine the worth of individual shareholder stakes in such a privately held operation consider factors that can significantly reduce the value of an individual’s holdings.

“There are two key factors that can impact the value of a privately held business — lack of marketability and lack of control,” Certified Valuation Expert Anderson said. “Depending on the circumstances, they can pull the value down by as little as 10 percent or less to as much as 90 percent or more.  This is definitely something you want to consider if you own shares in a privately held company or are thinking about buying or selling this type of shares.”

Anderson said lack of marketability refers to the difficulty of selling shares in a privately owned business.  While it is easy to sell shares in a publicly traded company simply by contacting a stockbroker to handle the transaction, the same is not true for a privately held company, he said.

“There is no ready market for the shares of a privately held company,” said Anderson, a business valuation expert in Philadelphia.  “Selling these shares usually requires the services of a business broker and even using a broker takes time.  Of course, the longer it takes to sell the shares, the less the value they hold because they are tying up your money.  If the shares could be sold immediately, you would have the option to reinvest the proceeds immediately.”

In addition, Anderson explained, unless the privately held business pays regular distributions or dividends, the shareholder does not receive interest or dividends on the investment while the stocks are being sold.

A business broker also is likely to require a greater commission or fee to sell shares of a privately held company than a stockbroker would charge for selling shares of a publicly held company, according to Anderson, a business valuation expert in Philadelphia and the Delaware Valley.  Finally, he said, if the ownership stake is subject to a shareholder’s agreement, the agreement may contain additional restrictions on the sale of shares.

“A Certified Valuation Analyst must consider each of these issues to determine the amount of discount that will be applied to the shares due to the lack of marketability,” Anderson said.

Lack of control — the other key factor a business valuation expert must consider in determining the worth of a privately held business — refers to the inability of a minority shareholder to make key decisions affecting the company, Anderson said.  For example, he said, a majority shareholder can set salaries, benefits and bonuses or decide to sell part or all the company.  A minority shareholder lacks the power to make those decisions and usually lacks the ability to compel or influence others to make them.

Because of this lack of control, the business valuation expert will further discount the pro-rata value of the interest to satisfy the expectations of potential buyers.

“A business valuation expert must analyze the lack of marketability, the lack of control and many other factors to determine a reasonable discount and, consequently, the true value of your shares,” Anderson said.

If you need a business valuation professional in Philadelphia, or if you require any other services of a forensic accounting expert in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Valuation Analyst and a Certified Fraud Examiner in Philadelphia.

Forensic Accountants Can Oversee, Mediate Family Inheritance Issues

Posted by & filed under Blog Articles, Company News, Forensic Accounting.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, forensic accounting and marital dissolution services in Philadelphia and the Delaware Valley.

Family arguments over such minor issues as toys, chores, or family rules are quite common among siblings, cousins, or other relations.

However, these youngsters often grow up and get engaged in more meaningful, and significant, disagreements over trusts, estates, or other inheritance issues.

This is where the services of a forensic accountant can come into play.

“Unfortunately, there rarely is a family member who can step in as the ultimate arbiter to settle the conflict,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm.  “Instead, the unhappy beneficiaries often turn to the courts to resolve the dispute, ending up in litigation that can be very contentious and very expensive.”

Anderson said, in many cases such as these, families turn to a forensic accounting expert to analyze the management and administration of the trust or estate and to account for the assets and transactions.

“Perhaps one or more beneficiaries, who often are siblings or other relatives, believe the fiduciary (trustee or executor) is mishandling the trust or estate’s finances, is improperly taking funds from the trust or estate, or has improperly or unevenly distributed assets or income of the trust or estate.

“A forensic accounting expert has no stake in the matter and is not a family member.  He or she is concerned only with the facts of the matter at hand,” said Anderson, who provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  “As a result, both the beneficiaries and the fiduciary can be confident that the forensic accountant’s report will be independent, fair and unbiased.  Engaging a forensic accounting expert to settle the conflict is less contentious and less expensive.”

Anderson said a forensic accountant’s report typically identifies the specific documents that govern the administration of the trust or estate and cites specific passages from those documents regarding management of assets, distribution of funds, payment of fees to and expenses of the fiduciary, and related matters.  The report identifies the period examined, provides a schedule of assets of the trust or estate at both the beginning and end of the period, and lays out (in either detail or summary form) the transactions of the trust or estate.

Anderson, a forensic accounting expert in Philadelphia and the Delaware Valley, said the report outlines the forensic accountant’s findings regarding the fiduciary’s management of the trust or estate relative to the trust documents, and whether any transactions conflict with the governing documents.  The forensic accountant will review the report with the beneficiaries and the fiduciary and answer any questions regarding the findings.

While the cost of engaging a forensic accounting expert to analyze the handling of a trust or estate is usually significantly less than the cost of actual or threatened litigation, it is the lessening or neutralizing of the emotional aspects of the dispute that can be even more appealing to families.

“A forensic accountant’s involvement reduces the contentiousness,” Anderson said.  “Family members tend to acknowledge that the dispute is in the hands of a professional whose independent analysis will bring peace of mind to everyone involved.  The forensic accountant is, in effect, the ultimate arbitrator we grew up with.  It’s the next best thing to Mom and Dad.”

Anderson recommends that beneficiaries and fiduciaries engage the services of a forensic accounting expert at the first sign of a dispute — before the matter escalates and family relationships are destroyed.

“Don’t let suspicions of mismanagement fester until things have gotten so bad that there is no hope of repairing the relationship,” said Anderson, whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley.  “Family is important.  Bring in a third party as soon as a conflict arises.”

If you require a forensic accounting expert in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia with more than 30 years of experience in financial and operational leadership positions. He is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.

What is a Calculation of Value?

Posted by & filed under Blog Articles, Business Valuation, Company News, Forensic Accounting, Fraud, Fraud Deterrence.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services including business valuation, fraud investigation, and fraud deterrence programs in Philadelphia and the Delaware Valley.

There are many circumstances under which a business valuation is required.  These can include:

  • For estate and gift taxes
  • For divorces
  • For certain business disputes and other litigation, including minority or disaffected shareholder oppression suits
  • As required under certain business or partnership operating agreements, including for shareholder or partner buyouts
  • As required for firms that are audited and have goodwill or purchase price allocation needs
  • When a business is being sold and the acquirer makes a business valuation a requirement of the purchase agreement
  • For insurance purposes (either to obtain business insurance or to support a claim)
  • To meet certain government regulations (such as Department of Labor regulations for Employee Stock Option Plans)

Professional business standards require a business valuator follow certain procedures when performing a business valuation.  These generally include:

  • An analysis of the nature and history of the business
  • Analysis of the economic outlook in general and the condition and outlook of the specific industry in particular
  • A detailed analysis of the business’s economic performance and condition as well as a comparison to other similar businesses in the same industry
  • Making normalization adjustments to the financial statements of the business
  • Consideration of asset-based, income and market approaches in determining business value
  • Application of marketability, control and other premiums and discounts
  • Consideration of non-operating assets and liabilities
  • Preparation of a report documenting all the above items

Sometimes, however, a business owner would merely like to know the value of either his/her business or one which he/she is considering acquiring.  In such cases, while a traditional business valuation can be performed, a less rigorous type of analysis known as a Calculation of Value may be performed instead.

Under a Calculation of Value, the client and the business valuator agree on a more limited scope of procedures to be performed.  For example, they may agree to not analyze the economic outlook and/or industry outlook; to not perform a detailed analysis of the business’s economic performance relative to that of similar businesses in the same industry; to not consider one or more of the three approaches to determining business value; and/or to not consider one or more valuation methods under particular valuation approaches.  By limiting the procedures performed, the cost of the service will likely be reduced.

Typically, a Calculation of Value will result in an estimated range of values for the business (for example, the result may be an estimate of between $500,000 and $800,000).  The Calculation of Value report will include the caveat that this is the result determined based upon the limitations in procedures performed, and that had all the normal business valuation procedures been performed, the results may have been different.

Nevertheless, when a business owner is seeking a reasonable estimate of business value (as opposed to a “scientific” opinion of value as determined under a business valuation), a Calculation of Value may be a reasonable and less costly alternative.

If you require the services of a Certified Valuation Analyst in Philadelphia or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Valuation Analyst and a Certified Fraud Examiner in Philadelphia.

Serial Fraud Shares Traits with Other Types of Crime Sprees

Posted by & filed under Blog Articles, Forensic Accounting, Fraud, Fraud Deterrence.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence programs and forensic accounting services in Philadelphia and the Delaware Valley.

Serial crimes, such as murder and arson, have certain characteristics in common with fraud.

According to Certified Fraud Examiner David Anderson of the Philadelphia forensic account services firm of David Anderson & Associates, serial fraudsters tend to start out “small” and their initial crimes may occur in a hasty and sloppy manner.

As time progresses, he said, they learn from their “mistakes,” and the crimes are better planned and better designed to avoid detection of their involvement in the crime.  In addition, Anderson noted, the time period between incidents of the serial crimes may get shorter and shorter as their need for gratification gets stronger and stronger.

There may also be a sudden halt in the serial criminal’s activities or an unusually long period of time between the crimes, he explained, that often is attributed to such factors as incarceration (for another crime), treatment or some other disruptive influence.

Over his years of work as a fraud deterrence expert, Anderson said he has found similar characteristics in frauds. Here are just two examples:

“In one case, the Controller of a medium-sized business found herself short of funds going into a three-day holiday weekend,” he said, going on to say “her solution was to ‘borrow’ from the company’s petty cash.  Because she didn’t consider herself to be a criminal, she left a signed personal check payable to the company for the amount that she “borrowed”.  The next payday, she paid back the funds and took back her check.”

Anderson said the Controller, a month or two later, once again found herself short of funds for several credit card bills.

“She again ‘borrowed’ funds from petty cash,” Anderson said, continuing the explanation, “this time a larger amount, and again left a signed personal check payable to the company for the amount that she ‘borrowed’.”

The cycle, he said, continued at shorter intervals and for larger amounts until she had ‘borrowed’ the full amount of petty cash and was unable to pay it back from her next paycheck.  Her ‘solution’ to this problem was to submit phony expense documentation (such as copies of already reimbursed expenses and phony receipts obtained from the Internet) to cover the ‘borrowed’ amounts she was unable to repay.

“However,” Anderson said, “she feared the sudden jump in her reimbursable expenses would be noticeable, so she began using other methods to obtain funds including paying phony vendors, ghost employees – keeping certain terminated employees on the payroll and splitting paychecks with them – and accounts receivable fraud — writing off the accounts receivables of friends, neighbors and family members who had purchased items from this business – in return for a portion of the written-off amounts.”

Anderson, a Certified Fraud Examiner, said his company’s investigation showed that over time, the amounts and frequency of the fraud grew until it was discovered.  This pattern of growth in amount and frequency, he said, was typical of other frauds the firm has investigated.

In another recent case, Anderson said one family member of a family-owned retail business began embezzling funds from customer invoices for which the customers paid cash.

Because the company had a manual cash register system, the family member removed both cash and the corresponding invoices from the deposit slips and invoices he provided to the accounting clerk who entered the information into the company’s QuickBooks accounting system. He additionally hid the cash shortages by delaying payments to vendors (telling them that business was bad).

“When I investigated the fraud,” Anderson said, “interviews with employees revealed that this family member frequently gambled in Atlantic City.  This led me to suspect that his embezzlement was tied to his gambling losses.”

Because the family member in question was a member of the comp clubs at each of the four casinos at which he gambled, Anderson said he was able to obtain documentation of his daily cash winnings and losses from each casino.  His embezzlement activities generally mirrored his gambling losses.

“During my initial investigation,” Anderson said, “I also noted an 11-month break in his embezzlement activities.  When I matched his embezzlement activities with his gambling wins and losses, I noted that during that same 11-month period, he had consistent net gambling gains from the casinos.  Since he was winning, there was no need for him to embezzle funds.  However, once he lost all these gains, he went back to embezzling funds again.”

If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.

Just Having a Disaster Recovery or Contingency Plan is Not Enough

Posted by & filed under Blog Articles, Business continuity, Disaster Recovery, Forensic Accounting.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services including business valuation, fraud investigation, and fraud deterrence programs in Philadelphia and the Delaware Valley.

Hurricanes; Tornados; Active Shooter/Shelter in Place; Fires; Floods; Terrorist Attacks; Sexual Harassment Scandals; Financial Impropriety.

In today’s world, businesses, governments, and other organizations need to have plans in place to deal with these disasters as well as other unexpected threats.  Sadly, most do not have such plans.  But, even many of those that do find their plans are ineffective.

Why is this so?  Primarily because they have failed to regularly test and update their disaster recovery and contingency plans.

Two weeks ago, the city of Sioux Falls, South Dakota was hit by tornadoes, and activated its contingency plans.  Those plans included setting off sirens to warn the populace.  However, most of the sirens were not activated because, among other failures, Sioux Falls did not regularly test its emergency plans.

Recently when visiting a new business client, I asked whether they had a disaster recovery or contingency plan.  They proudly showed me their plan.  But, when I read through the plan, I noted several serious problems:

  • The plan coordinator no longer worked at the company, and the position had never been reassigned;
  • The company had moved to its present location two years ago, but the plan addressed disasters occurring at the old location;
  • The plan was over five years old.

Additionally, the CEO admitted the plan never had been tested, and that new employees had never been trained to implement the plan.

Regular testing and updating of disaster recovery and contingency plans are main reasons why first responders and many organizations regularly schedule drills (remember fire drills from grade school?). The purpose of such drills is not only to run through the plan, but also to observe problems with the plan (including being outdated) so they can be fixed and tested again.

For example, when I worked for the Resolution Trust Corporation (RTC), we regularly had fire drills.  Each floor of the office building I worked in had a fire drill coordinator who was responsible for making sure that everyone had vacated the floor.

However, in the middle of one day’s drill, the fire drill coordinator was out sick, and the backup person identified in the fire drill plan had previously left the organization.  This problem was identified because of the drill, and a backup person was quickly put in place.  Had the RTC not done so on a timely basis and a real fire occurred, someone might have been hurt.

If your organization does not have a disaster recovery or contingency plan in place, you need to start putting one together now.  But even if you do have such a plan, it needs to be regularly tested and updated in order to continue to protect your organization and employees.

If you need a comprehensive contingency and disaster recovery plan or require any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.

 

Five Common Business Valuation Mistakes to Avoid – Part Two

Posted by & filed under Blog Articles, Business Valuation, Company News, Forensic Accounting, Fraud, Fraud Deterrence.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services including business valuation, fraud investigation, and fraud deterrence programs in Philadelphia and the Delaware Valley.

Our two-part study of the most significant mistakes made while performing a business valuation concludes as Philadelphia forensic accountant and Certified Valuation Analyst David Anderson takes a closer look at three additional issues often encountered in this process.

Three: Relying on outdated business transactions and industry growth rates:

According to David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation services in the Delaware Valley, recent business cycles saw peak transactions prices paid around 2000 and 2006.

However, due to more recent economic history, including the “great recession,” Anderson said prospective buyers would not expect to see comparable prices in the present.  Similarly, economic growth rates around those same time periods were much higher than currently expected growth rates, said Anderson – a forensic accounting expert in Philadelphia with experience conducting business valuation services in the Delaware Valley. Relying on this outdated transaction and growth rate information, he said, results in overstated business values.

Four: Failing to add back in the value of non-operating assets:

Many businesses have assets on their books that, said Anderson – a Certified Valuation Analyst in Philadelphia – are not used in current business operations.  Examples include: Cash and/or marketable securities over what is needed to meet working capital requirements, vacant land, investments in outside businesses, artwork (unless the business is a gallery), and antique vehicles.

Professional valuation standards, as explained by Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation services in the Delaware Valley, call for identifying such non-operating assets, valuing them separately and adding them back to the value of the business (the logic being that a prospective buyer could purchase the business, operate it without these assets, sell these non-operating assets, and pocket the proceeds).

Five: Ignoring the capital structure of the business:

Equity investors typically require a greater rate of return to accommodate the risks they take investing in a business, Anderson explained. However, many businesses can borrow from banks and other lenders at considerably lower rates.  The company being valued may already have long-term debt at such a rate or it may be the norm for companies in the same industry to have a capital structure that includes long-term debt.

In such cases, said Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation services in the Delaware Valley, the valuator must consider the overall capital structure of the company to determine the blended (or weighted average) expected rate of return (which will be lower than the equity rate of return alone).  Considering such a lower overall rate of return is likely to result in a higher equity value for the business than would be determined if the capital structure of the business were ignored, noted Anderson a Certified Valuation Analyst in Philadelphia.

If you require the services of a Certified Valuation Analyst in Philadelphia or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Valuation Analyst and a Certified Fraud Examiner in Philadelphia.

Five Common Business Valuation Mistakes to Avoid – Part One

Posted by & filed under Blog Articles, Business Valuation, Company News, Forensic Accounting, Fraud, Fraud Deterrence.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services including business valuation, fraud investigation, and fraud deterrence programs in Philadelphia and the Delaware Valley.

The business valuation process, in almost all instances, follows proper professional procedures; however, there are times when a financial professional fails to follow accepted standards of practice. In this first of a two-part series, Philadelphia forensic accountant and Certified Valuation Analyst David Anderson takes a closer look at two of the five most frequently made business valuation miscues. The other three will be studied in Part Two.

One: Concentrating on just one approach (the income approach) for valuing a business:

Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation services in the Delaware Valley, explains that valuation standards require a valuation professional to consider three different approaches for valuing the business – income approach, market approach, and asset approach.

Although the income approach is often the easiest, and least-expensive, approach to consider (the market approach requires researching public company transactions and utilizing costly databases; and the cost approach frequently requires the use of real estate, fixed asset and/or inventory appraisals as well as potentially requiring additional valuation analysis for intangible assets), Anderson – a forensic accounting expert in Philadelphia with experience conducting business valuation services in the Delaware Valley says it is not always the most reliable approach for all companies and all circumstances.

For example, a company with operating losses in some years may be deemed to have no value under the income approach, but it could have positive value under the asset approach and/or the market approach.  Additionally, says Anderson, a Certified Valuation Analyst in Philadelphia, a relatively new company or start-up (particularly a technology company) may not have sufficient operating history to which the income approach can be effectively applied, but may have a significant value as determined under the market approach.

Two: Ignoring normalization adjustments:

The unadjusted earnings of many privately held companies, according to Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation services in the Delaware Valley, may not be comparable to other similar companies because they may be paying more, or less, than market-level compensation and benefits to their owners and officers.

Additionally, said Anderson, the owners may have had the business pay certain non-business costs, or the business may have received certain one-time revenues or incurred certain one-time costs that would not have to be experienced by a future owner.  As a result, Anderson, a Certified Valuation Analyst in Philadelphia, noted it is necessary to adjust to these revenues and expenses to make the business comparable to that of similar companies.

Next Week: Mistakes Three, Four, and Five.

If you require the services of a Certified Valuation Analyst in Philadelphia or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Valuation Analyst and a Certified Fraud Examiner in Philadelphia.