Dictionary of Exit Planning Terms

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A/B Trusts

An A/B Trust is used in the United States to maximize the Unified Credit available to a husband and a wife to minimize Federal estate and gift taxes and to accomplish other estate planning objectives. Marital assets are deposited in this type of trust. When the first party to die, this trust then transfers certain assets into an "A" trust and other assets into a "B" trust.

Add-backs

Extraordinary one-time expenses, such as the cost of moving the plant or owner's travel and entertainment expenses that are added back earnings to give a more realistic view of the company's earning power. Add backs are subject to acute scrutiny by the buyer, because business travel and business entertaining are usually a regular cost of doing business.

Asset Sale

A form of acquisition whereby the seller of the Corporation agrees to sell all or certain assets and liabilities of the company to a purchaser. The corporate entity is not transferred.

Assets Retained

The specific assets and owner would retain after selling the business. Examples include such items as whole life insurance policies, personal automobiles, and excess cash and country club memberships.

Audited Financial Statements

A company's financial statements which have been prepared and certified by a Certified Public Accountant (the auditor). In the U.S., the auditor certifies that the financial statements meet the requirements of the U.S. GAAP. An auditor can have an unqualified opinion, in which he or she agrees with how the company prepared the statements, or a qualified opinion, in which he or she states which aspects of the company's statements he or she does not agree with. In extreme cases, the auditor may express no opinion on financial statements at all, in the case that the scope of the audit was insufficient.

Acquisition

Transfer of control of one corporation to another via merge, buyout or otherwise.

Angel Investors

An individual or group of individuals who are at high risk investors, who like to make investments in promising acquisitions. Angels often have valuable business experience, and can be helpful as a member of the Board of Directors.

Asset-Based Valuation

A method to value a business that adds the value of all the company's assets and subtracts the liabilities, leaving the net Value of its assets. Different approaches to Asset-Based Valuations include Book Value, Replacement Cost, Appraised Value, Liquidation Value and Market Value. Asset-based valuation methods ignore the importance of a company's earnings and cash flow. For this reason, this valuation approach is not typically used to determine the market value of a company that is being sold.

Auction

The process for selling a business that involves soliciting a number of potential buyers and inviting them to offer bids for a business by specific date. The competition between multiple buyers normally will push the purchase price upward.