I’m a serial entrepreneur and start up specialist.
My passion is creating value. I like to work for equity because I like knowing that if we execute on our business plan, we will monetize our ideas. I need to focus almost all of my time and energy on my company, so I don’t have the time or the inclination to pay much attention to my personal finances. Where do I start?

How do I determine valuations of my startup?

o How do you put a price tag on a company? They aren’t the type of thing bought and sold off a supermarket shelf. Is a company worth only the property it owns? Or is it the work the owner and staff have put into it?

o The complex process used to determine a company’s official value is known as “business valuation.” Having a professional valuation can be inconvenient, but knowing a company’s formal value is extremely important when planning or transferring ownership.

o There are any number of reasons heads of startup business need to know the value of their company. Some of the most common include:

Sale of the company
Succession planning
Liquidation of the company
Establishing personal net worth
Preparation for initial public offering

What Affects a Business’s Value?

From the day a business opens, its fair value becomes more and more difficult to determine. Profits start to come in, wages must be paid out, machines begin to wear down and the company establishes a reputation. After a few years, trying to find a dollar value for everything a business does can seem impossible.

The value of business is more than just the equipment it owns or the income it generates. There are numerous factors that affect value—some have nothing to do the company’s operations. Some of the factors include:

Corporate earnings, historical and current
Growth potential
Economic outlook for the industry as a whole
Success of similar businesses
Book value of all physical and intellectual property
Outstanding liabilities
Asset liquidity (how easily the company can be converted into cash)
Controlling shares of the company
Value of company stock (if any)

Some or all of these factors (as well as others) may be used during the valuation of a company. Which factors get the most attention depends on valuation approach used during an appraisal.

Approaches to Valuation
Appraisers can use a number of different approaches when determining where a company’s value lies. The most common approaches to valuation are the asset-based approach, the income approach and the market approach.

Asset-based approach – This method predominantly looks at the utility and value of the physical property that a company owns. It suggests that a company’s full value is held in the things it owns. Income approach – The income approach focuses on how much money a company produces through its operations. For companies that rely heavily on services, this approach tends to make more sense. (Future income must be adjusted to a present value.)

Market approach – Perhaps the most obvious means to determine a business’s value, the market approach simply looks at the previous values of similar companies. Since no two businesses are the same, an appraiser can use industry-standard multipliers to adjust the value of the business up or down to better reflect its unique situation.

Different approaches suit different businesses and transitions. For instance, a bookstore’s value is best reflected by the asset-based approach; its value comes from the items in stock and the building it is in. Similarly, companies going out of business may also be evaluated this way; their value comes from selling off all of the equipment, inventory and real estate.

A company focused on service is more likely to be evaluated by the income approach because they have few physical goods and generate value through skilled labor. Accounting firms are an excellent example of this; an office is not worth much by itself, but a firm can have high value through its client list and the high demand for its expertise. When a company is acquired by another business or decides to go public, the market approach might be best method for valuation. The market approach will allow a business to use historical information to get the “big picture” of its value. Private equity companies will often use market value to determine the purchase price of a company they intend to grow and keep.

Because each method has different strengths, most valuations will incorporate more than one approach. Using a blend of valuation techniques, an appraiser can reach a value that best represents the company’s worth.

Standard and Premise of Value
Much like any other product sold at a price, a company’s value changes with the circumstances surrounding its sale. The “standard of value” and “premise of value” make up the hypothetical climate under which a company is valued.

Standard of Value – This reflects the relationship between an owner, the would-be buyer and the desire to close the sale. The standard of value typically used is “fair market value”—the value a random willing buyer and a random willing seller would reach if neither were anxious to buy or sell and both parties were fully aware of all the business’s details.

Premise of Value – These are the assumptions made about accessibility of the business’s value. If the company is considered capable of operating indefinitely and producing value, appraisers calculate its “going concern value.” If the business’s value comes from it being dismantled and sold off, the premise of value is through “liquidation.”

Valuable Information
Business valuation can be a lengthy process with a vast number of shifting factors, only some of which are looked at here. Business owners should not attempt to evaluate their own company, it should be left to a professional, objective third-party. Valuations should be done regularly, especially if the value is suspected of potential tax implications for estate or succession planning. Valuations can also be particularly important for partnerships where surviving parties may be required to purchase a deceased partner’s share in a company.

If you are considering a business valuation or are hoping to get more information on how your company’s value affects you, contact Ferris Capital, for guidance and professional advice.

Should I be taking on more debt?

For many people, debt is a necessary evil, or even something to avoid at all costs. But debt is actually not a black and white issue. Not all debt is bad, but not all debt is good either. In order to avoid financial ruin and maximize your money’s potential, it’s important to know the difference between good and bad debt, how much debt you should have and how to make debt work to your advantage

Leveraging your debt—borrowing at a low interest rate and investing at a higher rate of return—is also good debt. The most common occurrence is investing in a home through the use of a mortgage. But there are other ways to make your money work harder using debt.

When you take on a loan, you owe a certain percentage of interest on that loan. Similarly, when you invest in the stock market, you get a percentage of interest added to your investment, depending on how well the market does. If the percentage of interest you earn is greater than the percentage you pay, you’re successfully leveraging your debt. When done correctly, leveraging can be extremely effective at building wealth. This type of investing can have much higher returns than regular investing, but it also carries higher risk—if your investment doesn’t pan out, you not only lost the amount you invested, but you also owe interest on your loan. Leveraging also doesn’t work if your interest rate is too high or your rate of return is too low. Investing when you have credit card debt is a bad idea, because no investment can guarantee a return higher than your credit card interest rate. It’s also a bad idea to borrow money just to have it sit in a low-interest savings account—the interest you’re paying must be lower than what you’re earning on the investment, or you’re not successfully leveraging your debt.

Have I covered the essentials of trust & estate planning in my personal finances?

While the thought of having a personal “estate” may conjure images of Vanderbilts, Rockefellers and the other wealthy elite, an estate is probably the most common thing for a person to have. By definition, an estate is simply the property under an individual’s name. It can include everything from a home or business, to bank accounts and retirement funds.

Taking steps to plan for the future of your estate can be one of the most important things you do. In fact, dividing and bequeathing your property is the very last official action you make. To ensure that loved ones can make the most of what you are able to leave them, it is important that you learn the different parts of estate planning and consider how they might affect you.

How much planning is enough? That depends on the goals you want to reach. Using a variety of methods, there is no limit to the amount of control you can put on your estate. And while not every estate requires every method of planning, it can be helpful to know the steps of planning available to you.

Benefits to Beneficiaries
The first and easiest step to planning an estate is establishing beneficiaries of private funds or policies, like life insurance policies, 401k plans and pensions.

This is the easiest step in estate planning because it is typically requested by most plans that a primary and secondary beneficiary be listed to receive funds in the event of a death. Though some plans, like life insurance, will require the beneficiary at signup, others may make it optional to do later. People often put off establishing beneficiaries, creating problems if they die suddenly. Whenever an option to name beneficiaries is offered, it should be handled immediately.

The next major step in estate planning is establishing a last will and testament. While a person who dies without a will (dying “intestate”) still has his or her property divided up among family, there are no guarantees over who gets what. A will is a simple way to make sure specific items get to the people who ought to have them.

If children are involved, a will becomes a necessity for a responsible parent. Wills determine who gets legal guardianship over the surviving children. Though a court will take this process seriously if the decision is left up to them, it is far better for the parents to designate the people they would like to raise their children. A will stating guardianship should be top priority for anyone with children. Though useful for declaring who should receive property, wills do not automatically guarantee another person can receive it. If property is owned jointly with a right of survivorship or is kept as “community property” between a married couple, ownership may be transferred before a will goes into effect. Though most state’s marital property is not treated this way, individuals should be aware of their state’s marital property laws prior to creating a will.

Handing Over Power
Potentially as difficult as a death, the medical incapacitation of an individual can cause huge amounts of stress for a family. Living wills give instructions for the medical care of an individual given they are in an incapacitated, terminal condition. Though limited to these specific situations, living wills can spare a surviving family from difficult decisions and prevent conflict between members who have different views on treatment.

A more in-depth approach to prepare for sudden incapacitation is the creation of “power of attorney,” a document that gives a named individual the ability to act on behalf of the disabled in legal matters. Drafted for both medical and financial decision making, power of attorney documents can be extremely difficult to detail and should only be created by a legal professional.

Though many people think trusts are financial bodies that are only meant for the wealthy, the truth is they can be used by most people to create detailed control over an estate. A trust is simply a legal entity that holds property for the benefit of a few named individuals. Though the major advantages of a trust are deferring probate fees and having circumstantial control over property distribution, trusts are also useful for couples who have children from prior marriages. In a trust, a person can place property that would pay interest to help support the surviving spouse, but ultimately distributes property to his or her children, guaranteeing they receive some of the inheritance.

Individuals looking to reduce their estate before death should consider simply giving money away to loved ones later on in life. Each year, a person can give up to $14,000 tax-free to each unique individual or institution they choose. As long as the gifts stay below this amount, they will remain tax-free and still not count against the lifetime gift tax exemption. There are no transfer taxes on gifts made to public charities, regardless of size.

Securing Estate Documents
After necessary estate documents are prepared, they should be adequately stored and protected. Wills are the most difficult to protect. Most states recognize only the original signed document as having any legal power. If the original is destroyed, a new will must be drafted. Typically, the law firm where the document was created will offer to keep the will in an extremely secure safe.

Other documents, such as living wills and power of attorney, can typically be copied and notarized to create duplicates that carry the same legal power as the original. As with wills, loved ones should be informed of the documents’ location so they can be accessed when needed.

Estate planning can be a difficult process for people. The concept of preparing property for an accident or death is hardly something people want to spend time considering. Though its creator will never see it used, a well-written, well-conceived estate plan can make all the difference for friends and family.

Who Owns What?
An important aspect of estate planning is determining the state of ownership of all property associated with the estate. Wills and probate only deal with the property officially belonging to the testator. Joint-ownership of property through marriage or another arrangement keeps property out of probate because it is already owned by another person.

Joint-ownership, marital property or “life tenant” policies combine the ownership of property so that a surviving partner gains full control after a death. It is important to know the details of ownership because it affects how property is handled after a death.

Filing for joint ownership seems like a great method to bypass probate and probate costs, but it comes with inherent risks. People added to a joint ownership have as much legal control of the property as the original owner. Bank accounts can be accessed and emptied by either party, causing problems if the money was relied on for future plans. Similarly, property that is jointly owned often cannot be sold or altered without permission of both owners. Because of these risks, joint-ownership titles should only be sought if both parties have similar plans for the future and trust each other implicitly.

Death and Taxes
While people make efforts to avoid probate costs and court fees for the estates they leave behind, taxation is a much more encompassing process. Probate only handles property that needs to be distributed by a will or intestate laws. Taxation looks at all property that an individual held at death and shortly beforehand. The taxable estate includes all property (owned outright and joint-owned), investments, recent donations, trusts and life insurance policies. While much of an estate can be declared either tax deferred or tax exempt if passed on to a spouse or charitable donations, estate and gift taxes on inheritances can be extremely high. Local estate taxes can vary greatly from state to state. Research and legal advice should be sought to protect against any unexpected estate taxes.

Simplifying the Future
Many people avoid estate planning because of the inconvenience of cost and the uncomfortable concept of their death. The simple fact is that death or serious accidents cannot be controlled; however, if the proper steps are taken, almost everything legally associated with an unfortunate event can be organized. A plan and proper legal arrangements keep unnecessary fees, taxes and court battles from plaguing a family after the death of a loved one.

Ferris Capital can help craft or review the plans you have laid down for the future and what else you can do to ensure property moves seamlessly between the survivors of a death in your family.

Get in touch with our experts

 David Ferris

David Ferris

 Andrew Vernazza

Andrew Vernazza


The Ferris Capital Process

We firmly believe that the best results come from a consistent process with a thoughtful design.

We use low cost ETFs, mutual funds, individual bonds, and stocks to build custom portfolios for our clients that are in line with their larger financial plan. We always seek to use the lowest fee, most efficient investment vehicles possible and to utilize best of class managers when they offer more value than an index or ETF.

Understand Your Goals and Financial Situation 

Ferris Capital meets with you to fully understand your goals, time horizon, anticipated cash flows, and feelings towards investments in general . We also conduct an in-depth evaluation of your total financial picture including insurance, wills, trusts, 
and employee benefit options.

Create a Financial Plan Tailored to Your Goals

Ferris Capital works with you to develop a comprehensive financial plan that positions you with the highest probability of success in meeting your goals. The plan includes goal-driven asset allocations, tax sensitivity, long-term estate planning, and overall 
risk management.

Establish the Proper Accounts and Legal Structures

If applicable, Ferris Capital can direct you to top notch accountants and attorneys or work with your existing relationships to formulate and execute the structures and strategies to best protect your assets from taxes and liability. 

Current Investment Evaluation and Tax Analysis 

We analyze your current holdings to see if there are any embedded taxable gains or additional issues that should be considered in building your portfolio. If there are any issues, we will construct the investment portfolio to address those issues specifically and potentially use the existing investment as proxies to our investment model choices. 

Portfolio Construction

Using the risk profile from the financial plan and the considerations from the analysis of your existing assets, we manage your capital in one of our strategies that corresponds with your risk level which are designed using our proprietary market outlook, historical asset class performance, manager interviews and internal expenses. 

Ongoing Maintenance, Monitoring, and Reporting 

Ferris Capital monitors market and portfolio changes and keeps you informed on performance, risk and goals-based progress through quarterly calls or meetings. We also look to address any liquidity needs or life changes that may impact the long-term financial plan. 

Why Ferris Capital?

All investment firms offer “financial planning”. However, not all investment firms are bound by the fiduciary standard and not all firms are conflict free. Ultimately the most important difference between firms comes down to the people, their experience, and the service they provide.

At Ferris Capital, our independence ensures that your interests always come first. We believe that transparency and integrity are critical to building long-term relationships. We’re devoted to a client experience that revolves around the needs of you and your family, not around commissions.

Our work doesn’t end with a financial plan; that’s where it begins.


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