Opening Comments
Welcome to ourSummer 2010 issue of Valuation/Litigation Insights. Through this publication, our hope is to bring our friends in the business community original, internally prepared perspectives that are brief, meaningful and useful. With each article we identify our intended audience, allowing you to focus on what is relevant for your practice or business. Please let us know if there are any topics you would like to see addressed in future issues.

Falling for Ponzi
How an Age-Old Scam Continues

By Ray Dunkle, ASA, CPA, ABV, CVA, CFE, CFF

I recently read my umpteenth story about Ponzi schemes.This one came from the Association of Certified Fraud Examiners and discussed the new Ponzi-demic an epidemic of Ponzi schemes.The epidemic appears to be real: as I was researching this article I received my daily e-mail from Crains. This e-mail included a story identifying two men in Boardman accused ofa Ponzi scheme.

The frequency of such schemes has gained my interest. My interest is less in how these schemes occur (using funds from new investors to payout old investors) and more in why they occur.My research led to an article by Stephen Greenspan. Greenspan is a Ph.D psychologist and author of a book titled Annals of Gullibility: Why We Get Duped and How to Avoid It. He is also a victim of Bernard Madoff.

Greenspan identified 5 key components that point to why human nature allows Ponzi schemes to succeed.They are:

�Being sheep (my words) Greenspan notes that humans model their behavior after other humans, especially when dealing with issues we do not fully understand. We also tend to do what works for others. Watching others succeed at complex investing decisions can cause us to do what they do. Greenspan, for example, was led to Madoff funds by a well-intentioned family member.

�Situations Seeing others succeed can cause us to feel that we are being foolish by not replicating their actions.

�Cognition A high IQ does not equate to immunity from gullibility. Being lazy about pursuing the facts can cause us to miss some big warning signs.

�Personality Being a people-pleaser, a risk-taker and/or an impulsive decision-maker can prevent us from making reasoned decisions.

�Emotion a need for security and happiness, and the sense that it has been found, can override the logic of analysis.

The full article can be read at http://www.psychologytoday.com/blog/the-good-life/200912/the-good-life-ponzi-scheme .

None of us believes we will fall victim to such a scam, which is ultimately why they succeed.My rule of thumb If it is too good to be true

Are Your Clients Prepared for Their Exit
By Ray Lampner, CPA, ABV, CVA

For many owners of privately held businesses, exiting their business may not be their favorite discussion topic.Some struggle to envision the business continuing without their leadership.Others dont want to think about their day-to-day life without the business and its activities. Business owners are truly entrepreneurs and the same self-confidence and passion that enabled them to build a prosperous enterprise may be holding them back from moving forward. On top of the psychological issues relating to exiting a business, the current economic climate has caused many business owners to question the value of their business.

As business advisors, we need to make sure our clients know how to successfully exit their business.There are three possible strategies an owner can use to successfully exit the business:

�Sell to an independent 3rd party

�Sell to employees (including ESOPs - Employee Stock Ownership Plan)

�Transfer to a family member

The first step in any of these exit strategies should be the preparation of a business valuation. A business valuation will give the business owner and their advisors the starting point of a good exit plan because the business is possibly their largest asset. Athorough valuation willset the groundwork for makingimportant decisions about tax planning, retirement funding and the business owners legacy to his or her family and community. If the business valuation is done properly, it will also provide detail relating to risk factors that may be suppressing the value of the business. If this is the case, starting the exit planning process 5-10 years before the planned departure will allow the business owner sufficient time to address the risk factors and increase the value of his or her largest asset.

In regards to a business valuation, one of our clients said it best recently when he was discussing his exit plan with his business partner:

Dont you check the value of your stocks Dont you pay attention to what the value of your house is - see what the neighbors house sold for Why wouldnt you do that with your business

I completely agree and any exit strategy cannot address all of the concerns without a business valuation that considers the perceived business risks associated with the enterprise. If you would like to discuss exit planning in more detail contact Ray Lampner at 330-572-8014 or m.

Disclaimer: These articles are intended for our friends in the legal, banking and professional services community and merely reflect our observations. These articles should not be construed as legal counsel. Contact an attorney whenever legal advice is needed.

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