After the owners of a $60 million manufacturing business passed away in 2010, the IRS mandated a valuation of their business to determine the amount of tax owed on their estate. The accounting firm handling the businesses’ annual audit did not have experience in the field of business valuations and called Gelman, Rosenberg & Freedman’s business valuation team to assess the fair market value of two manufacturing companies that now belonged to the estate of the deceased owners. Gelman, Rosenberg & Freedman determined the value of both the voting and non-voting stock of the companies.

The major challenge of this engagement was determining which valuation techniques (income, market, or asset approach) to apply to each company.


Gelman, Rosenberg & Freedman’s business valuation team began by conducting a site visit to collect historical financial information and interview management. The Gelman, Rosenberg & Freedman team also gathered information including a list of competitors, facilities, equipment and inventory.

Next, the team analyzed five years of audit statements. The team discovered that the owners paid themselves a salary that was approximately $250,000 over what someone in a similar position would have earned. The owners also paid below market rent (approximately $50,000 below market) on the companies’ operating facilities (through a related party arrangement) via two real estate partnerships.

Based on these findings, the team made normalizing adjustments to the financial statements in the areas of rent and executive compensation. Gelman, Rosenberg & Freedman applied a minority interest discount to the calculated value of the businesses to account for the fact that the owners who died did not have a majority ownership stake in the companies. Additionally, Gelman, Rosenberg & Freedman applied a lack of marketability discount to account for the fact that a private business is a non-liquid asset and therefore takes time and resources to sell.

The valuation report included an industry analysis, in-depth economic analysis and a financial analysis of the company.


Gelman, Rosenberg & Freedman evaluators had to apply multiple valuation techniques utilizing a mix of the income, market and asset approaches. The Gelman, Rosenberg & Freedman team researched the companies, the industry and the economic climate at the time of death in order to determine which method of valuation was appropriate for each company. In the final analysis, different methods of valuation were utilized for each company in a manner that reflected the specific risk patterns of each.