RE: Estate / business sale

[MGC94]

Hi everyone. 

I was wondering if you were to sell a sole proprietorship what do you think the value would be? 

Would anyone be interested in doing an evaluation of a business (I can pay you). My mommom passed away and she owned a sole proprietorship. Now that she has passed and the will is 50/50 my mom and uncle he wants 1/2 of the value of the business. The attorney said to hire someone to come up with a value. 

To sum it up in a nutshell we do not make a lot of money. I am sure this would be small to do. The 3 desks and 5 filing cabinets are trashed picked. 

I am thinking that the business passed away with her. I had to get my own EIN, register with NJ, get fingerprinted, write a letter to the IRS why I have the same client list, and so on. None of the clients know my uncle he lives 16 hours away and worked in the army and lived in another country most of his life. I worked here with my mommom. If anyone came back it is because they knew I was here. 

8 months now since she passed, and he is saying it is worth several hundred thousand dollars. The tax office would have been closed without the assistance of you guys from October-December trying to get my EFIN and taking all the steps needed so I could have done this.

[IRonMaN]

I believe the starting point for valuing a tax or accounting business is annual revenues times a factor of 1.  That factor goes up or down depending on various factors including the profitability of the practice.  But when doing those calculations, it is assumed that the person that buys it is planning on being able to run it.  If uncle thinks it is worth a billion dollars, tell him that he can come down and get the keys anytime.  Otherwise write him a check for $150 to cover the value of the office equipment and call it even.  If he prefers picking up the keys, tell him good luck and walk down the block and open up your own tax practice in your new digs.

[Just-Lisa-Now-]

There are brokers/companies that will help sell a tax practice, it will all depend on your annual revenue.  Contact a few and see what kind of formula they use.

I purchased a portion of a client list from a preparer that was retiring, I paid him 50% of his 2021 tax prep fee for each client that came to me for 2022 taxes.

[qbteachmt]

Your mom doesn't own this business. You started your own. The start you got was having access to that client list. A business like that would be deeply discounted at sale.

Think if you had not been in a position to take on the work; the only asset is the client list, and that is only as potential earnings, not a hard asset but an intangible. If I bought that list from you, I would not agree to any fixed amount. I would negotiate that only a share of each returning client would be paid to you, and only for a set amount of time (perhaps only year one). Otherwise, everything else came from your efforts, as those clients made a decision to stay with you or not, not because they had to. In other words, their business is not a lock in this type of service offering. So, there is very little inherent value in "the business" but that won't stop the uncle from thinking there is money to be had. Tell him unless he can come earn it by drumming up business and performing the work, there is no real value in the business other than what you do. You could lock the door and go to work for someone else.

In other words, he may have read or heard about buying and selling businesses, but he is overlooking that you don't really own a business. You own your job. The business is you.

I went through this with an architect. His best friend was out golfing a lot in the summer and skiing in the winter, and owned a retail shop with staff. The architect didn't understand how his buddy was able to be out of the office so much. I pointed out that if this architect was not doing his job, he had no operations. He is his own business, so unless he is "at work" he has no business in reality. He owns his job. His buddy has staff running the shop while he was out and about.

"To sum it up in a nutshell we do not make a lot of money. I am sure this would be small to do. The 3 desks and 5 filing cabinets are trashed picked."

You need to stop demeaning yourself, this business, and all the effort. Every time you post, it is sad. Buck up. You're making a life.

[MGC94]

The office is a home office. It is in our house. It is very small. Fits 3 desk (my mom, mommom, myself). @IRonMaN would you be willing to write a letter with your credentials. I can pay you for your services. 

I can go over what she grossed and what it went down to from 2015-2022. I quit my job in 2016 to work for my mommom. 

I had to get an appraisal done of the house I've lived in 28 years and my mom lived in for 50 years. He lived here 14 years total and then he left. From 4 years old until 18. I was the caregiver to my mommom. The will was from when my mom was 16 and my uncle was 18. He vowed to my mommom we could live here forever and I have sworn affidavits of him telling people he made that vow to his mom, but now he doesn't have to keep it. Money can do crazy things to people. 33 days and the cancer took my best friend. 33 days from scan to hospice. 

Court is suppose to be 6/20, but the lawyer is trying to postpone. If someone is willing to write a letter or help me come up with a value that has credentials that would be amazing. 

I agree with you @IRonMaN. You have to work the business to make any money 

[BobKamman]

The will was done when she was 16?  That's not a valid will in most states.  

[MGC94]

The will was written when my mom was 16 and my uncle was 18. Their mom (my mommom) is the one with the 50/50 will. So my mommom was 45. In those 36 years my mom and I lived with my mommom and worked in the office with her while my uncle lived in another country and now he wants the house and the business

[MGC94]

@qbteachmt I hear and agree with everything you are saying. I can tell you guys understand. @qbteachmt would you be willing to write me a letter so I can send it to the lawyer/the judge for trial? 

I need someone who has "relevant professional credentials" ex. a CPA/ an accountant. 

I just need a word document with a letter head and signed so they (the court) can see what we all know. 

The reason my uncle would not have been able to drum up the clients is because they do not know him. The business was my mommom through and through. It was her kindness, her generosity, her love, her genuine care. That is what started this business. 

[IRonMaN]

I don't have any credentials when it comes to business valuations so something coming from me wouldn't mean a heck of a lot.  It sounds like your grandma didn't do you any favors by never updating her will.  Is your uncle someone that just sees dollar signs or is he someone that everyone involved in this predicament can sit down and have a common sense talk?

[qbteachmt]

There is very little business value here. There was a customer base, which is known as Leads. This is the same as a referral process. Don't let hindsight be used for valuation; what you have going now is because you pursued getting credentials to invest in making yourself a new business.

If you are still working under some dba for purposes of letterhead, and that was carried on from her days, then offer to change it or offer to pay for the right to keep it.

[MGC94]

So, the attorney said we just need a CPA/accountant to write a letter. I do not think it has to be from someone with business evaluation credentials. 

He is just seeing dollar signs right now. He filed a civil action complaint to remove my mom as executor, he sent a realtor here not even 2 months after she passed away. He broke the front door and we had to call 911. It went to court the judge gave them 30 days to talk it out. They met 3 times and twice he walked out. They (whoever the mutual party that was that went) all said he was unreasonable. 

We had to get a lawyer because it is going to trial. This is not a big estate. It is very small. We do not live in a mansion. 

Anything that you could write would be helpful @IRonMaN. I feel like you guys actually understand because you are in the same situation as a value of a person

[MGC94]

She was registered under a different name with the IRS and state because she did this 26 years. When she move it to our home she changed the name, but not legally. 

Because this name was not taken I got it from a county level, the IRS and from the state and the bank.

@qbteachmt would you consider writing a small letter and emailing it to me? It would be so much appreciated. 

Yes, what I had was access to the client list. All of them pretty much watched me grow up from 2 years old until 28 years old. They are so proud of me for being able to continue. It was hard, but I plan on learning as much as I can

[qbteachmt]

It is obvious this is a disturbing event, but you need to stop writing all the family-personal-legal drama. Not only does it not matter here, you should not be airing out any of those details in a public forum.

"When she move it to our home she changed the name, but not legally."

You stated it is a Sole Proprietorship, so that doesn't matter. You have too many concerns that are not anything that matters.

"Because this name was not taken I got it from a county level, the IRS and from the state and the bank."

And that means anything from before the date you did all of this, is all that matters.

"to the client list. All of them pretty much watched me grow up from 2 years old until 28 years old."

That's not a business issue. You need to let go of the hurt, of her death and his betrayal, or you likely will bring up all sorts of things that don't apply and you will jeopardize this yourself and you will lose. It's called "peeling an onion" in that you only include what applies, and don't get maudlin or extemporize.

I am not qualified to step into your issue. There are too many unknowns. I was once asked to do something similar for a pretty close friend, for an employment issue, and I was asked to include personal reference that he was not a gambler, etc. I realized I really didn't know that he was not a gambler, once I thought it through.

[TaxGuyBill]

Google something like "selling a tax practice".  That will give you several 'brokers' that help buy/sell tax practices (generally the client list). 

They are the experts that can tell you what it is worth.  Call or email them, and ask them to provide you an estimate of what it is worth, and give that to the attorney.

[qbteachmt]

"of what it is worth"

What it was worth when she died. The right to continue to do business will be part of that valuation, but not what you turned it into with your efforts.