Financial Needs of Established Business Owners

The role of small business owners in the US economy has been well documented by the Small Business Administration among other organizations. The vibrancy and growth potential of this group has been especially dynamic over the last two decades. While this research has been revealing, it has not focused on a number of important segments that make up the small business population. The focus of this research is to better understand the financial needs of perhaps the wealthiest, most dynamic and diverse group within this larger population. These are owners of established businesses (i.e., those with two to five hundred full-time employees in addition to a full-time owner).

This study measures the size of this group as well as the degree of their affluence. The affluence measures are determined by income and wealth excluding the value of their residence. Beyond this, we identify various segments within these broader categories and the extent business owners in each category are prepared to seriously address what we have termed business life events. Business life events are critical moments in the life of a business owner that trigger a series of actions that influence the future direction and success of the firm and its owners. The table defines five business life event categories.

Business Events

Baby boomers are the dominant segment of the wealthy owner marketplace. Given their age and wealth, they will need to address critical business life events over the next fifteen years. In two of these business life events, retirement planning and estate planning, a majority of wealthy business owners indicate that they have addressed these issues to varying degrees. The others, those tied to the value of their business, remain a mystery. As well, it is not clear that business owners with estate plans have updated those plans for gains in business value over the last decade. A primary objective of this study is to measure the degree to which owners are prepared to address business valuation related issues.

This summary is taken from a paper written by Axiom’s President, Roger Winsby and its Chief Valuation Officer, Stanley J. Feldman. Access Financial Service Needs of Established Business Owners here.

Welcome Todd!

Todd Feldman has joined the Axiom team as a Senior Valuation Analyst and Partner.

todd_feldmanIn the past, he has worked with Axiom as an economic analyst prior to working as a consultant for Fundamental Investment Advisors in San Francisco, and as an Associate Professor of Finance at San Francisco State University where he taught Corporate Finance and Financial Markets & Institutions, advised undergraduate students, and researched behavioral finance and international economics.

Todd is an accomplished academic with a passion for research. He received his Bachelor’s degree in Finance and Accounting form SUNY, Binghamton and went on to pursue his Masters of Science in Applied Economics at University of California, Davis, and Masters of Arts in International Economics at University of California, Santa Cruz before receiving his PhD in International Economics and Finance from UC Santa Cruz. Todd has earned the CFA designation and in addition he has published in major academic and practitioner journals. His publications include:

  1.  “Buy and Hold versus Timing Strategies, The Winner is.” Joint with Alan Jung and Jim Klein. Journal Portfolio Management, 2015.
  2.  “Quantifying Irrational Sentiment.” Journal of Investment Strategies, 2014, 3, 1-16.
  3.  “Investor Behavior and Contagion.” Quantitative Finance, 2014.
  4.  “Emotional Investing and Performance.” Algorithmic Finance, 2011, 45-55.
  5.  “Computational Economics and Econometrics: An Exercise in Compatibility,” (joint with Andy Sun) International Journal of Computational Economics and Econometrics, 2011, 105-114.
  6. Behavioral Economics Conference, Erasmus University Rotterdam, in honor of Daniel Kahneman, October 2009.
  7. Brand Value and Perceived Risk in the Service Sector – Presented at Almaden Research Lab, IBM, San Jose, CA, September 18th, 2008.
  8. Humans, Robots and Market Crashes: A Laboratory Study – Presented at the International ESA Conference at Caltech, Pasadena, CA, June 28th 2008
  9. Portfolio Manager Behavior and Global Financial Crises – Presented at SCIE PhD Conference, Santa Cruz, CA, May 30th 2008.


Roger Winsby Interviewed on the Importance of Business Valuations

On May 8, 2015, Axiom’s president, Roger Winsby did a radio show interview with Josh Patrick, president of Stage 2 Planning Partners. and a host on Exit Coach Radio Network & Podcast.  They discussed the various reasons why business owners should consider getting a valuation and what to look for as a business owner who is getting a valuation done. The interview can be found in the Axiom Library or on Exit Coach


Dr. Stan Feldman Appointed to the Sterilis LLC Board of Directors

On March 9, 2015, Axiom’s Chairman, Dr. Stanley Feldman was appointed to the Board of Sterilis LLC as an independent Director.  Sterilis is revolutionizing the regulated medical waste industry.

Dr. Feldman is the Chairman and co-founder of Axiom Valuation Solutions and has an extensive background in valuing complex capital structures of early and late stage VC and private equity financed firms, and has conducted numerous assignments to meet the requirements of FAS 123R and IRS 409A.  He has led valuation teams working with Axiom clients going through the IPO process and has successfully interacted with the SEC and Big Four audit firms on valuation issues related to client S-1 filings.

Stan is a Certified Patent Valuation Analyst faculty member and leading expert in valuation issues, including Purchase Price Accounting (FAS 141R/ASC 805) and Goodwill Impairment (FAS 142/ASC 350) particularly, as they impact the valuation of intangible assets.

For more information regarding Dr. Feldman and Sterilis, please follow the link below:

Press Release

C Corp to S Corp Conversion

From February’s Axiom on Value

The Window to Elect S Corp Status for 2015 Closes March 15

Many business owners are completely focused on the day-to-day operation of their business.  For these owners, issues of ownership transition planning and optimal tax strategy at the owner’s exit are “nice to consider” but will be irrelevant if the company does not make it through next month’s payroll.  CPAs for these businesses try to educate their clients on the long-run implications of staying as a C corporation, the de facto structure when incorporating, but often run into a variant of “why bother? In the long run, we are all dead”.

The decision whether to elect S corporation is a complex one, and should only be done after reviewing with your advisors the pros and cons of both corporate structures.  However, we note that according to IRS statistics, most “small” businesses chose the S form at some point in their stage of development, so it is an issue worth serious consideration if the owner expects to sell the business, rather than close it down upon retirement.

 Major Difference in Taxes Paid in an Asset Sale between a C and S Corp

The primary reason to consider electing S corporation status is that there can be a significant difference in the taxes paid on the sale of a business in an asset transaction between an S corporation seller and a C corporation seller.  (If the buyer is willing to buy the corporate stock, then there may be little or no difference in taxes paid by sellers of a C or an S corporation).   In an asset transaction for a C corporation, the gains on tangible and intangible assets are taxed at the corporate capital gains rate, which is 35% at the federal level.  Then, when the corporation closes down, it will distribute the remaining cash as dividends, which in most cases are taxable at the individual level.  The effective tax rate can exceed 55% of the gain in the C corporation assets.

The asset sale of an S corporation after 10 years following the S election will be taxed at a much lower rate, since the capital gains are taxed at the individual capital gains rate, and there is no tax on distributions.

The 10 Year Window for the BIG Tax 

For companies that elect S corporation status, there is a 10 year window following the election when the C corporation tax structure will apply to the value created as a C corporation.  The IRS imposes a “Built-In Gain (BIG) tax on the gain in value of the company’s assets as of its conversion from C to S.  The gain in value over the value as a C corporation is taxed based on the S Corp rules.  Consequently, it is necessary to determine the value of the company and its tangible and intangible assets in their C status as of the conversion date.

If S Election is Made, a Business Valuation Should be Done

The valuation should be done using the conversion date as the effective date.  This valuation will be based on the financial statements of the business up to the conversion date, and on the outlook for the company as of the valuation date.

The valuation should determine the total fair market value of the business.  For larger companies, there should be an additional analysis to allocate the total asset value over specific tangible and intangible assets, in case there are sales of specific assets during the 10 year window.

This valuation will not be filed with the IRS upon its completion.  The valuation will stay with the corporation and its CPA for use in the tax calculations, if there is a sale of assets or the business during the 10 year window.  Having the valuation done just after the conversion date is the best way to maximize the rewards from building and operating a privately held business.

 S Corporation Basics (from IRS publications)

S Corporation Requirements

To qualify for S corporation status, the corporation must meet the following requirements:

– Be a domestic corporation
– Have only allowable shareholders
* May be individuals, certain trusts, and estates and
* May not be partnerships, corporations or non-resident alien shareholders
– Have no more than 100 shareholders
– Have only one class of stock
– Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).

Steps to Elect S Status:

Complete and file Form 2553:  No more than two months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the tax year prior to the tax year the conversion is to take effect.

On August 1st, 2014, Voltaire Advisors released the first “Valuation Risk Handbook”:

 Axiom Valuation Solutions is proud to be included in the directory of the first annual edition of Voltaire Advisors’ new handbook. Voltaire Advisors has sought a way to shed light upon some of the issues that firms today are dealing with.  Valuation issues are becoming increasingly complex and central to financial reporting for many organizations.  As the complexity has increased for these organizations, issues have also arisen for the valuation firms:

The Voltaire Advisors Valuation Risk Handbook aims to present, in one easily accessible publication, a clear and comprehensive review of the key issues currently facing firms involved in the ongoing valuation of financial instruments, and the sources of pricing, data and models available to them to assist their efforts. Nowhere previously has this information been collated in one volume, and we firmly believe that our Handbook will become an indispensable resource for valuations professionals.

(Excerpted from Valuation Risk Handbook, 2014)

 To download the FREE handbook and directory, click here:

Valuation Risk Handbook

Hear Roger Winsby’s 1 minute “What is your value story” for owners thinking about selling their business in the next few years on Exit Coach Radio!

In this 1 minute highlight, Roger Winsby, President, Axiom Valuation Solutions,  discusses the importance of positioning your business for sale based on the Buyer’s needs and perspective.

The interview was conducted by Bill Black, The Exit Coach, on The Exit Coach Radio Show – the Information Station for Age 50+ Business Owners contemplating Business Succession and Exit Planning. To find other content on this Topic or by this Guest – See the “INDEX” Tab … We add new content daily!

Listen on iTunes:
(please leave an iTunes review – it really helps us spread the word!)

What is Your Value Story? – Roger Winsby

Axiom Valuation’s Roger Winsby interviewed by Bill Black on Exit Coach Radio on Your Business Value and How to Improve It

Roger Winsby, President, Axiom Valuation Solutions,  discusses the methods of valuation that can be used and ideas and strategies to help business owners enhance and increase their values. The interview was conducted by Bill Black, The Exit Coach, on The Exit Coach Radio Show – the Information Station for Age 50+ Business Owners contemplating Business Succession and Exit Planning.

To listen, click here:

Roger Winsby, President and Co-founder

Roger Winsby

Axiom Valuation Moderates Session at BEPC on Maximizing After-tax Proceeds of the Sale of a Closely Held Business

Roger Winsby, President and co-founder of Axiom Valuation Solutions, filled in for Dr. Stan Feldman at the Boston Estate Planning Council (BEPC) February Member Round Table Breakfast on February 4, 2014.

Program Title:  Maximizing the after-tax Proceeds of the Sale of a Closely-held Business

Program Description:    One of the many  myths of selling a closely-held business is that the best sales price also yields the most after-tax proceeds. This seminar will address why this may not always be the case, how to structure a transaction to ensure that all of the seller’s objectives are met including maximizing  the after-tax proceeds  of the sale and minimizing  what we  term deferred liability- the risk of the seller not getting what was negotiated.   Benefits to attendees include:

1.      Learning how identifying and quantifying personal goodwill offers a way to maximize the after-tax proceeds of a sale.

2.      Learning what the conditions need to be to minimize IRS pushback from using a personal goodwill strategy.

3.      Learning why identifying and valuing the intangible assets, excluding goodwill, of a business results in a business owners receiving higher sales multiples

4.      Learning that deal terms often have hidden costs that far outweigh their tax benefits.

        Link to Presentation PDF:          2013.02.04. Maximizing After-tax Proceeds of Sale, a free industry search engine sponsored by Axiom Valuation, has over 1 million visits since 2008

Axiom Valuation Solutions has provided the most user-friendly industry search engine for NAICS codes and SIC codes since 2002.  We started tracking visits through Google Analytics in April 2008. has had almost 1.1. million visits since then.

The Internal Revenue Service requires that businesses report their Principal Business Activity Code on their federal tax return. There are over 400 business activity codes from which a business owner or accountant can select as the appropriate one for their principal activity from a table in the tax return instructions. However, for many small- and medium-sized businesses, even this level of detail does not provide enough specificity to determine which is the right business activity code for the business.

Since the IRS business activity codes are based on the North American Industry Classification System (NAICS pronounced Nakes), has constructed a more detailed searchable index of NAICS codes, their descriptive titles, and over 18,000 additional terms that provide alternative descriptions of these industries. With this level of detail, you should be able to find the right business activity code for almost any type of business.

Why Is the Right Business Activity Code Important to the IRS?

According to the IRS, classifying a business “facilitates the administration of the Internal Revenue Code.” Practically speaking, the business activity code helps the IRS to determine for auditing purposes what is the right comparison group for a business. The IRS uses computer programs to compare financial ratios of a business with the same ratios for a comparable grouping of businesses in the same industry and within the general size range. Companies that show substantially different ratios from the average for their industry group are more likely to be flagged for further scrutiny.

For the IRS, the more accurate the activity code designations are, the better this screening process will work. The IRS does not rely solely upon the business activity codes for categorization. They also request a brief description of the company’s principal business activity and of the company’s principal product or service.

Why Is the Right Business Activity Code Important for You?

For owners or accountants preparing tax returns for a business, the business activity code is the most important indicator used to determine the peer group for comparison in the IRS audit screening programs. The IRS uses computer programs to compare financial ratios of a business with the same ratios for a comparable grouping of businesses in the same industry and within the general size range. Companies that show substantially different ratios from the average for their industry group are more likely to be flagged for further scrutiny.

Visit  for more information.