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John Kane* was a supervisor at Big Stone Contractors*, a specialty construction company, for many years. He, and two other Big Stone supervisors, were given the opportunity to purchase Big Stone from the two retiring owners for $1.2 million.
To make the deal, the retiring owner offered to finance 100% of the purchase price. The business did very well for the new owners, who increased sales and profits. This allowed them a cash flow beyond their expectations. After about three years, John developed an “outside interest”, resulting in marital problems. Ultimately, JoAnn filed for divorce.
Working through his attorney, John claimed the business was not worth much. He based this claim on the facts that he and the other two owners had to get 100% financing for the purchase price, and that the extra cash flow in the business was being poured back into it. John presented various limited and incomplete tax returns and financial data to support his claims.
Meanwhile, JoAnn’s attorney was unsure of the accuracy of John’s claim, and ultimately, JoAnn and her attorney concluded they were not knowledgeable enough to come to any conclusion pertaining to the value of Big Stone. JoAnn’s attorney then called Tony G. Rees, CPA ABV of Taylor Rees Beckey & Co., P.C. headquartered in Muscatine, IA to review the meager documentation they had been provided. After reviewing a few abbreviated documents, Rees concluded there may be substantial value in John’s interest in Big Stone.
After a meeting among JoAnn, her attorney, and Rees, the forensic accounting firm of Taylor Rees Beckey & Co., P.C., was engaged to perform a valuation of John’s interest in Big Stone.
Rees visited the office of Big Stone and initiated a thorough investigation. In poring over company documents, he discovered Big Stone had a company valuation formula the prior owners had used for a buy/sell agreement.
After Rees determined the value of the company, his value was compared to the internal valuation formula of the past owners and was found to be very similar. Before leaving the office of Big Stone, the controller of the company agreed the value of $800,000 that Rees had arrived at was substantially correct.
The bottom line? John had tried to convince everyone Big Stone was a chip off the old block. Armed with the substantial documentation and information Rees had uncovered and developed for presentation, JoAnn’s attorney was able to quickly bring John to agreement, and successfully settle the divorce action while greatly enhancing JoAnn’s settlement. For JoAnn and her attorney, Big Stone really was a piece of the rock.
* For confidentiality, case names have been changed.
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