Frequently Asked Questions

GENERAL

What businesses can SPARDATA value?
Can SPARDATA value companies wherever they are located?
Do SPARDATA reports stand up to IRS scrutiny?
Does SPARDATA stand behind its work?
How long will it take SPARDATA to prepare my report?
How does SPARDATA assure quality?
Does SPARDATA value Family Limited Partnerships too?
What information does SPARDATA need to value a security?

PRODUCT LINE

When is 50-100 page report appropriate?
When is a 5-10 page Update Report appropriate?
How does my client order a SPARDATA Report or an Update Report?
Can SPARDATA also value Family Limited Partnerships?
How does my client order an FLP Report or an Update FLP Report?
Must the fee be paid in advance?
Is a SPARDATA valuation appropriate when buying (say) Key Man Insurance?
I have a client/prospect interested in selling his business - Is a SPARDATA appraisal appropriate?
I have a client/prospect who has received an offerfor his business - What appraisal would you recommend?

PLACING ORDER

What contract should my client use?
Must the fee be paid in advance ?
Must the questionnaire be completed with the order packet ?
Is it the affiliatesresponsibility to collect the data from the business owner?
Does SPARDATA ever require more information than that?
What if my client disagrees with SPARDATA's value conclusion?

VALUATION METHODOLOGY

How does SPARDATA value a business ?
How can you compare a small business to a large public company?
How large is the marketability discount?
How large is the control premium?
Do you ever see a "marketability discount" and a "control premium" at the same time?
Does SPARADATA visit the company being appraised?
Does SPARDATA ever use other valuation methods?
How does SPARDATA value a tangible asset like land (as opposed to operating a business)?
What if my clients company owns real estate? Does SPARDATA value the business and the land?
If the business owns several tangible assets, does SPARDATA charge a separate valuation fee for each one?

WHAT BUSINESSES CAN SPARDATA VALUE?

Just about any type of business, from law firms to car dealerships to apartment complexes. SPARDATA values incorporated and unincorporated businesses, closely-held companies, limited and general partnerships, debt instruments of all kinds including promissory notes and church bonds - the list goes on and on. In a nutshell if the business is private, SPARDATA can value it.

CAN SPARDATA VALUE COMPANIES WHEREVER THEY ARE LOCATED?

Yes, we can value companies in all 50 states. We do not currently value foreign companies, however.

DO SPARDATA REPORTS STAND UP TO IRS SCRUTINY?

SPARDATA valuations are written to meet the requirements of Rev. Ruling 59-60, the standard used by the IRS for estate and gift tax purposes. While there can be no assurance IRS examiners will agree with SPARDATA's conclusions in every instance, the fact is since 1990 thousands of SPARDATA Reports have been accepted by the IRS.

DOES SPARDATA STAND BEHIND ITS WORK?

Of course. A SPARDATA principal is always available to defend the company's work and to provide expert testimony at your request. There is an additional charge for this service.

HOW LONG WILL IT TAKE SPARDATA TO PREPARE MY REPORT?

Once you have provided the documents SPARDATA needs, SPARDATA Report are usually delivered within 6-8 weeks. If the report is required sooner, order a "Rush Report". Rush Reports are guaranteed to be delivered within three weeks.

HOW DOES SPARDATA ASSURE QUALITY?

Thanks to SPARDATA's patent-pending software called the Pricing Machine, our valuations feature remarkable quality and consistency. Any SPARDATA analyst using the Pricing Machine will value a company the same way, an advantage over business appraisers whose valuation conclusions may be highly subjective.

DOES SPARDATA VALUE FAMILY LIMITED PARTNERSHIPS TOO?

Yes, SPARDATA values FLPs and LLC's.

WHAT INFORMATION DOES SPARDATA NEED TO VALUE A SECURITY?

In every case SPARDATA needs the business' three most recent financial statements (or tax returns). In certain cases SPARDATA may need additional information. See the Order Package for details.

PRODUCT LINE

SPARDATA offers two appraisal products: SPARDATA Reports which are 50-100 pages long. (The Order Package specifies costs for each.) Both value a business exactly the same way. In other words if we think a company is worth $3 million, all of our products will say it is worth $3 million. So you can choose whichever product you think best meets your needs.

WHEN IS A 50-100 PAGE SPARDATA REPORT APPROPRIATE?

When you want a detailed explanation of how SPARDATA arrived at its value conclusions, including a 10-30 page discussion of how we calculated the marketability discount (or the control premium, as the case may be). This is the product to choose when you expect the report will scrutinized (IRS audit, divorce, etc.). Most people buy a SPARDATA Report the first time they have SPARDATA value their businesses, and buy Update Reports for subsequent updates.

WHEN IS A 5-10 PAGE Update Report APPROPRIATE?

When an "executive summary" of the SPARDATA Report will do. The Update Report has the same charts and graphs and a beautiful cover like the SPARDATA Report, but omits much of the same narrative. Use it for updates, or if the client is very cost-sensitive.

HOW DOES MY CLIENT ORDER A SPARDATA REPORT OR A Update Report?

Get a copy of the Order Package from SPARDATA's only Supply Room at www.SPARDATA.com. Have the client (i) sign the contract, (ii) complete the Questionnaire, (iii) write a check payable to SPARDATA for the appropriate amount and (iv) provide the business' three most recent annual financial statements.

CAN SPARDATA ALSO VALUE FAMILY LIMITED PARTNERSHIPS?

Yes. We have valued hundreds of them over the years. FLPs have become a very popular tool for estate planning. SPARDATA's FLP product line includes a full-length FLP Report, 50-100 pages in length and typically ordered the first time the FLP is valued. This report quantifies the discount for lack of marketability and lack of control. The FLP Update Report, 5-10 pages long, is typically used for periodic updates. The FLP Order Package specifies rates for each product.

HOW DOES MY CLIENT ORDER AN FLP REPORT OR AN FLP Update Report?

Get a copy of the FLP Order Package from SPARDATA's online Supply Room. Have the client (i) supply the requested information and sign the contract, (ii) provide a copy of the FLP Agreement and (iii) write a check payable to SPARDATA for the appropriate amount.

IS A SPARDATA VALUATION APPROPRIATE WHEN BUYING (SAY) KEY-MAN INSURANCE?

Absolutely, because SPARDATA uses the same approaches the IRS would use to value the company if the owner were to die. Thus SPARDATA appraisals are often used for estate and gift tax purposes, when buying key-man or buy-sell insurance, for estate planning or simply to satisfy the owner's curiosity.

I HAVE A CLIENT/PROSPECT INTERESTED IN SELLING HIS BUSINESS - IS SPARDATA APPRAISAL APPROPRIATE?

Owners selling a business should definitely have an appraisal in hand from an independent expert before starting negotiations. For owners of most companies, a SPARDATA business appraisal is an excellent choice.

If a company is large ($50 million-plus in sales) and its owner is willing to spend $25,000, $50,000 or more, several good appraisal firms will visit the company and spend several days or weeks interviewing management, checking the facilities, reviewing customer lists, etc. If interested in this alternative, contact us and SPARDATA will gladly recommend several firms offering such products. Even with larger transactions it often makes sense to have SPARDATA do a preliminary appraisal. Then only if negotiations look promising will the owner need to purchase a more detailed appraisal.

I HAVE A CLIENT/PROSPECT WHO HAS RECEIVED AN OFFER FOR HIS BUSINESS - WHAT APPRAISAL WOULD WE RECOMMENT?

See above reply.

PLACING ORDER

WHAT CONTRACT SHOULD MY CLIENT USE?

Use the contract in the Order Package in every case except when the client needs a "family limited partnership" valuation. For FLPs use the FLP Order Package instead.

MUST THE FEE BE PAID IN ADVANCE?

Yes. SPARDATA cannot release the appraisal without having been paid in full.

MUST THE QUESTIONNAIRE BE COMPLETED THAT WITH THE ORDER PACKAGE?

Not necessarily, but completing the Questionnaire certainly helps speed up the process and insures a more accurate valuation. What SPARDATA absolutely needs to value a business is:

• signed contract (in the Order Package)
• check payable to SPARDATA representing payment in full, and
• business' 3 most recent financial statements or tax returns.

IS IT THE AFFILIATES RESPONSIBILITY TO COLLECT DATA FROM THE BUSINESS OWNER?

Yes, The order is not deemed to have been placed until you provide SPARDATA with the contract, check and three years' worth of financial statements.

DOES SPARDATA EVER NEED MORE INFORMATION THAT THAT?

Yes, often. The SPARDATA analyst handling your client's valuation will call you directly if more information is needed.

WHAT IF MY CLIENT DISAGREES WITH SPARDATA'S VALUE CONCLUSION?

It happens from time to time. Our basic belief is that nobody knows more about a business than its owner, so SPARDATA's production process is built to accommodate input from the business owner which we welcome as an opportunity to fine-tune our appraisal. If your client disagrees with our 1st draft, he or she should write down on the draft report exactly what is disagreed with and send it back to us, together with the Questionnaire (if it has not only been filled out). The SPARDATA analyst will look into the matter and if a change is warranted will issue a revised report. And if we determine no change is warranted, the analyst will call you to explain why. And the analyst is pleased to speak directly with your client if you think it appropriate.

VALUATION METHODOLOGY

HOW DOES SPARDATA VALUE A BUSINESS?

SPARDATA uses several approaches to valuation depending on the type of entity being valued. Most often SPARDATA is hired to value an operating business such as a grocery store, dry cleaner, law practice or auto dealership. SPARDATA values an operating business by comparing it to publicly traded companies.

HOW CAN YOU COMPARE A SMALL BUSINESS TO A LARGE PUBLIC COMPANY?

Because that is how the IRS wants businesses to be valued for estate tax purposes. Such appraisals must meet the requirements of Revenue Ruling 59-60 outlining how a private company must be valued for estate tax purposes. A 59-60 valuation typically values a privately-owned company by comparing it to publicly traded companies in the same or similar line of business, and then either applying a marketability discount (if a minority position) or a control premium (if a controlling interest). All SPARDATA appraisals are designed to meet 59-60 standards.

Under this approach, the differences between big public companies and small private ones are taken into account by factoring in a discount for "lack of marketability" (or a premium for "control" if we are valuating a controlling interest in the business).

HOW LARGE IS THE MARKETABILITY DISCOUNT?

It varies, but is typically between 30%-45%.

HOW LARGE IS THE CONTROL PREMIUM?

It varies, but is typically between 30%-45%.

DO YOU EVER SEE A "MARKETABILITY DISCOUNT" AND A "CONTROL PREMIUM" AT THE SAME TIME?

Never. The two are mutually exclusive.

DOES SPARDATA VISIT THE COMPANY BEING APPRAISED?

No. Our analysis is largely based on the company's financial statements and other relevant documents, not a site visit.

DOES SPARDATA EVER USE OTHER VALUATON METHODOLOGIES?

Yes, quite often. Certain types of entities do not lend themselves to being valued by comparison to public companies. A start-up business whose principal asset is a patent or other intellectual property may have zero sales, operating losses and negative book value, but may considerable value so SPARDATA uses a discounted cash flow approach to appraise it. Another type of enterprise SPARDATA is often asked to value is a limited partnership which which owns real estate, oil wells, equipment or other tangible assets.

HOW DOES SPARDATA VALUE A TANGIBLE ASSET LIKE LAND (AS OPPOSED TO OPERATING A BUSINESS)?

Valuing a tangible asset is a three-step process. First SPARDATA values the asset to determine it's "equity" in the business. Second SPARDATA allocates the equity among the investors pursuant to its governing document (shareholders agreement or partnership agreement) to determine "Net Asset Value per share". (Another way of expressing NAV per share is the amount of cash that would go into the investor's pocket if the underlying if the underlying asset were sold on the valuation date.) Third SPARDATA applies a discount to reflect the share's lack of marketability to determine its "Fair Market Value per share". The discount can range from 16% to 47% depending on 10 different factors.

WHAT IF MY CLIENTS COMPANY OWNS REAL ESTATE? DOES SPARDATA VALUE THE BUSINESS AND THE LAND?

If the land is owned by the business, then SPARDATA will appraise it in the course of valuing the business. If the land were owned by a separate entity (e.g. a separate tax ID number) then the real estate will not included in the business valuation.

IF THE BUSINESS OWNS SEVERAL TABGIBLE ASSETS, DOES SPARDATA CHARGE A SEPERATE VALUATION FEE FOR EACH ONE?

Generally speaking in consideration for paying the valuation fee, SPARDATA will value every asset owned by that business. For example if an LP owns three oil wells, it will value all three as part of the valuation.

I HAVE OTHER QUESTIONS....

Call SPARDATA's sales department at (800) 895-4100.