local government

Read this if you are a business owner or an advisor to business owners.

In times of uncertainty, exit planning can be a strong reason to focus on the opportunity in front of you. Instead of waiting for conditions to improve, business owners are often best served by staying active, involved, and focusing their efforts on improving their business. Consider what opportunities you can take advantage of and be ready to succeed when the climate improves.

Assessing risks and strengthening operations

In periods of uncertainty, the landscape shifts—revealing weaknesses, threats, and hidden hazards. How these challenges are navigated can shape long-term outcomes. Will this moment be used to identify, assess, and address these risks? 

It is important to view challenging times in the context of a larger, long-term perspective. It presents the perfect opportunity to focus on building resiliency, redundancy, and strength. Unsettled times allow business owners to discover and understand: 

• What broke first and why? 
• How can you shore it up for better operations in the days ahead?
• What weak spots you didn’t know about are now apparent?
• How can you address those weaknesses?
• How can you leverage existing resources differently to chart a path forward?

Models of priority: The progress of a business

There are various stages or hierarchies of priority in thinking about the progress of a business. Each priority model features bases and pinnacles. The pinnacles of each model are realized in a long-term setting, after the remaining bases have been solidified. While continued development of a clear vision for your business is paramount, dynamic shifts in the landscape call for reassessment of the bases. In the long-term, self-fulfillment manifests from properly executed strategy, but in the near- and mid-term, these various frameworks force strategic planning back to assess and address the base components.  

The bases of each model should serve as safe havens for reversion. When facing uncertainty and failure, have you made your base strong enough to redirect your efforts into an actionable plan for the long-term? 

Action Planning Pyramid and Value Maturity Index

The Value Maturity Index, broken into five stages, is a stepwise assessment of active exit and business strategy. Inherent in the value acceleration framework are the concepts of resiliency, redundancy, disaster recovery, and actionable planning. 

While we may have been fully entrenched in the build phase, setbacks due to dynamic changes in the landscape force us back to protect mode—the assessment and methodical shoring up of weaker points of the operation to protect against future downside risks.

Though this stepwise progression is linear in nature, flexibility and adaptability are paramount in changing course to address the needs of your current state. 

When we look at action planning, parallels can be drawn to the various models. Certainly, we are focused on continuing sales, marketing, and customer relationships, but it becomes a question of reversion to meeting the basic needs and serving a client’s pain points rather than beginning ground-breaking efforts.  

An uncertain climate forces us to the base, where the focus is on solidifying any exposed areas that have emerged, and likely compounded, by the current challenges. Concerns related to management, metrics, core values, and priorities are the bases in need of coverage. 

Maslow’s Hierarchy of Needs
 

Maslow’s Hierarchy of Needs¹ is a well-known motivational theory in psychology that comprises a five-tiered model of human needs, whereby each successive tier must be fulfilled (beginning at the base) before rising to the next tier. It can be used to view similar information from a psychological perspective.

Value acceleration and creating successful outcomes are largely tied to a clear long-term vision. We typically reside in the self-actualization level of the hierarchy of needs when undertaking the high-level view of the framework.

In periods of uncertainty, the emphasis is on adaptability, so there will be less concern with the top levels. Those levels remain available but are not the pressing issue of the moment. If we think about shoring up bases (the protect stage) when viewing this psychological model, our focus is on the “basic needs” level. That is, keeping people (i.e., self, family, and employees) safe and remaining connected for immediate continuity.

McKinsey & Company Event Horizons

Many others in related fields view uncertain times in similar terms. In the McKinsey & Company Events Horizon view²:

• Resolve addresses those immediate hurdles and challenges a business is currently facing.
• Resilience focuses on near-term items to be addressed once the initial base is covered. 
• Return views the mid-term horizon in understanding how to return to scale by focusing on understanding metrics and increasing the frequency of measurements for informed decision-making. 
• Reimagination and reform typically go hand in hand, but without covering bases of needs, crafting a dynamic shift in operations to incorporate new environments may be counterproductive. 

Once these bases have been clearly assessed and addressed, the path forward may appear dramatically different. This is when creative solutions to enhance opportunity should begin to take shape. Examples may include newly emerged revenue streams and opportunities, fully integrated systems and dashboards to capture timely decision-making data points, or strategic pivots in your business model to improve navigation in changing environments. 

Discover and control in uncertain times

Consider what the period of uncertainty has revealed and ask yourself: 

• What existing challenges became more apparent?  
• How can these areas be addressed? 
• Is this the time to make large investments in the company or the right investments? 

Taking stock of your company’s future through the incorporation of lessons learned will bolster value in the long-term by de-risking and developing new opportunities, methods, work, shifts in productivity, and shifts in mentality. That approach also brings lots of questions: 

• If there are no early warning signs, why not?  
• What should your indicators be?  
• What metrics are crucial in identifying the pulse of your current situation?  
• What is your business reliant on?  
• How can you build information and indicators for rapid shifts in decision-making?  
• How strong are your current controls and how integrated are your management and information systems? 

To answer these questions, you need to quantify and develop metrics that will aid in the early identification of future challenges, thus increasing your responsiveness with data-driven decision mechanisms. Having your fingers on the pulse of your company and understanding the impact of each input on your strategy will focus your attention on the information that matters most. This allows you to understand, position, and adapt to changes in your business and community environment in a proactive and agile manner. Measurements, forecasts, and dashboards should provide you with regular, valid, and relevant information you can use to take informed action in decision-making. 

The importance of look-backs

Historical look-backs during various points of time will allow you to key in on pivotal data indicators and inflection points. When looking at this from an operational view, industry and economic factors impacting your company can serve as corroborating pieces of evidence to further support data metrics analyzed.

• It's best practice to regularly study and update development, pipeline, and reliance metrics for feedback and information discovery with data integrated throughout your operations. This helps avoid lag time in reporting on stale information towards real-time actionable data points.  
• Each metric is specific to your business and can be directly mapped back to increases in shareholder value. Understanding these business value drivers will focus your attention and intention on improving in the right areas, while avoiding distracting and less impactful pain points. 
• Instead of focusing on precision, build in flexibility and adaptability with scenario- and sensitivity-based criteria to understand changes, implications, and reliance of each input. Understanding these relationships in a broader scheme aids you in quick, impactful decision-making, guiding you toward enhanced value. 

Remaining resilient in challenging times 

This approach allows an opportunity to fully assess the known and unknown problem areas, weaknesses, perils, and hazards your business may be facing. From that base, you can begin to address these issues to scale effectively with lower overall risk when activity picks up. 

Management metrics, core values, and priorities drive resilience for long-term continuity by shoring up the foundation to build for the future. Assembling evidence in troubled times provides an opportunity to capitalize on and fulfill core values. Documenting these decisions and improvements memorializes your decision-making and impact on value enhancement, and serves as a playbook for future events. 

What you make of difficult periods through identification, assessment, and addressing newly emerged risk areas provides the opportunity to increase success as the climate rebounds.

Key takeaways

• Stay active during uncertainty: Improve the business now rather than waiting for conditions to recover. 
• Identify and mitigate newly exposed risks: Examine what broke first, what weak spots surfaced, and how to shore up operations. 
• Reinforce the “base” of the business: Prioritize management practices, core values, metrics, controls, and near-term continuity. 
• Measure what matters more often: Build timely dashboards, forecasts, and early-warning indicators to support faster, data-driven decisions. 
• Document lessons learned and improvements: Create a repeatable playbook that reduces future downside risk and supports long-term value. 

BerryDunn can help 

Our credentialed business valuation specialists bring clarity to the complexities of valuation while adhering to strict development and reporting standards. Through our assessments, risk profiling, and benchmarking analyses, we help business owners discover the largest gaps across the company, prioritize the most impactful problem areas to address, and implement changes to enhance business value through continuous improvement. We render an independent, objective opinion of your company’s value in a reporting format tailored to meet your needs. If you have questions about your unique situation, or would like more information, please contact the business valuation consulting team.

¹Maslow’s Hierarchy of Needs, Saul McLeod, updated March 20, 2020. SimplyPsychology. www.simplypsychology.org/maslow.html.
²Beyond coronavirus: The path to the next normal, Kevin Sneader and Shubham Singhal, McKinsey & Company, March 23, 2020.  www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/beyond-coronavirus-the-path-to-the-next-normal. COVID-19: Briefing note, March 30, 2020, Our latest perspectives on the coronavirus pandemic. Matt Craven, Mihir Mysore, Shubham Singhal, Sven Smit, and Matt Wilson. McKinsey & Company. www.mckinsey.com/business-functions/risk/our-insights/covid-19-implications-for-business.

Who this article applies to: Healthcare compliance officers, administrators, clinical leaders, information officers, clinicians, and quality and risk managers at hospitals, health systems, ambulatory care facilities, and medical practices.

AI-based medical scribes have rapidly progressed from novel ambient listening tools used by tech-savvy clinicians to formally integrated applications in both ambulatory and hospital practice settings. Designed to listen to clinician‑patient conversations and generate draft clinical notes for review before they become part of the medical record, these tools promise to relieve clinician burnout by reducing the documentation burden and after‑hours charting. For healthcare organizations facing clinical workforce shortages and rising administrative pressure, the appeal is obvious.

How AI scribes work—and why it matters for compliance 

Most AI medical scribe platforms combine speech recognition, natural language processing, and generative AI to produce the clinical encounter note. Often integrated with the clinician’s electronic health record platform, audio recordings or transcripts are temporarily stored outside the electronic health record before the finalized note is returned for clinician review and sign‑off. The underlying technology may handle Protected Health Information (PHI) at multiple points along the informational data path.

This information architecture is important from a compliance perspective. Audio recordings and transcripts are electronic PHI, even if retained briefly. As a result, AI scribe vendors are considered business associates under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), requiring AI scribe vendor compliance with the HIPAA Privacy, Security, and Breach Notification Rules. There is no such thing as a “HIPAA‑certified” AI product—compliance depends on how the tool is deployed, governed, and monitored by the healthcare organization. 

Privacy, consent, and risk for AI scribe use 

A key risk area for AI scribes is patient consent. Because these tools record live patient-clinician conversations to generate clinical notes, in addition to HIPAA compliance obligations, their use may be governed by individual state audio‑recording and all‑party consent laws. Some states have one-party consent laws, while others (such as Connecticut) have two-party consent requirements, which require every participant in the conversation to give consent before recording begins.  

Consent cannot be assumed, implied, or retroactively documented by AI‑generated notes alone. Recent legal actions against healthcare organizations in multiple two-party consent states have alleged deployment of ambient listening tools without adequately notifying patients or obtaining valid consent for recording and downstream data use. Regulators and plaintiffs alike are scrutinizing whether patients were meaningfully informed that conversations were being recorded, how long recordings were retained, where data was stored, and whether patients had a genuine opportunity to opt out. Transparency and documentation around consent are rapidly becoming baseline expectations. 

Oversight and regulation are evolving 

At the federal level, most AI scribe tools are not currently regulated as medical devices. However, regulators are paying close attention to how AI influences clinical workflows and documentation. Recent FDA guidance on AI‑enabled health technologies emphasizes life-cycle governance, transparency, cybersecurity, and post‑market monitoring. AI systems have the same obligations that apply when humans access PHI—including minimum necessary standards, access controls, audit logs, and risk analysis.  

For healthcare organizations, this means enforcement risk is not theoretical. HIPAA applies fully to AI systems today, and state attorneys general and private litigants are increasingly willing to test the boundaries of consent, disclosure, and data governance in court. 

Practical guidance for AI medical scribe adoption and use 

When introduced within a strong governance framework, AI medical scribes can deliver demonstrable clinical and operational value. Organizations adopting these tools can reduce compliance risks by focusing on a few core principles: 

• Organizational self-audit: Know what tools may already be in use and restrict ad-hoc clinician use without organizational vetting and oversight. 
• Develop organizational governance policies for AI tool adoption and use:
  • Tool evaluation, selection, and approval
  • Data retention and deletion
  • Explicit clinician responsibility for review and sign-off of AI-generated notes 
• Vendor due diligence and contracting: Confirm how data is captured, stored, retained, and deleted. Require the vendor to provide evidence supporting compliance with applicable HIPAA provisions and execute a Business Associate Agreement (BAA). 
• Transparent patient communication: Clearly explain when AI documentation is used, what is recorded, and what choices patients have.
• Affirmative consent workflows: Build consent processes and documentation that stand on their own, separate from AI-generated statements. 
• Clinician accountability: Reinforce clinician responsibility for reviewing, correcting, and approving all AI‑generated documentation. 
• Oversight: Perform ongoing monitoring, audits, and periodic reassessment of AI-based scribe tools.

Ensuring responsible use of AI medical scribes 

AI medical scribes can improve efficiency, reduce burnout, and support high‑quality documentation. When deployed carelessly, these tools can erode patient trust and expose organizations to regulatory, legal, and reputational risk. 

Compliance, privacy, and operations leaders play a critical role in ensuring that innovation enhances care delivery without compromising the standards that patients and regulators expect and demand. 

Key takeaways

• Understand that AI medical scribes may handle PHI at multiple points along the informational data path. 
• Recognize that audio recordings and transcripts are electronic PHI, even if retained briefly. 
• Confirm that AI scribe vendors function as business associates under HIPAA and execute a Business Associate Agreement. 
• Build consent processes and documentation that stand on their own, separate from AI-generated statements. 
• Reinforce clinician responsibility for reviewing, correcting, and approving all AI-generated documentation. 

BerryDunn can help 

Our healthcare compliance team can help. We incorporate deep, hands-on knowledge with industry best practices to help your organization manage compliance and revenue integrity risks. Learn more about our healthcare compliance consulting team and services.    

When most people think about water parks, they think about slides, lazy rivers, and summer crowds. What they do not always see is a highly complex operation that blends revenue generation, community service, workforce development, and long-term planning in a way that many public sector organizations can learn from.

Water World, operated by the Hyland Hills Park and Recreation District, is a standout example. With more than 70 acres, 50 attractions, and roughly 500,000 visitors over an 85-day season, it operates at a scale that rivals private-sector attractions. But the more interesting story is not just its size. It is how that scale supports a broader mission.

Listen to the Let's Talk Parks podcast with guests from Hyland Hills Park and Recreation District. 

A different model for funding public services

At its core, Water World exists because of a funding challenge. In the late 1970s, the district needed a way to support programs that were not self-sustaining without raising taxes. The solution was to build a revenue-generating amenity that could subsidize the rest of the system. That model still holds today. Revenue from Water World and other enterprise operations helps fund community offerings like youth sports, parks, and senior programs, while keeping the local tax burden low.

This is a useful reframing for many public organizations. Instead of viewing amenities solely as cost centers, there is an opportunity to think about how select offerings can generate revenue that sustains the broader mission. Not every agency can or should build a large water park, but the mindset applies broadly. Strategic investments that attract regional audiences can create funding streams that benefit local residents.

Scale changes operations, but not fundamentals

Running a facility like Water World requires significant operational complexity. Behind the scenes, there are teams managing water quality, maintenance, safety protocols, and guest flow across dozens of attractions.

And yet, one of the most important takeaways is that the core challenges are the same as those faced by smaller facilities. Water quality, safety, staffing, and maintenance are universal. The difference is scale. In some ways, scale provides advantages. Larger operations can support specialized staff and dedicated teams. Smaller facilities often rely on fewer individuals wearing multiple hats.

For leaders in smaller communities, this is an important reminder. While your resources may be different, the fundamentals are not. Clear processes, strong training, and consistent attention to the guest experience matter just as much at a single pool as they do at a 70-acre park.

Staffing is a strategy, not just a seasonal task

Hiring nearly 1,000 seasonal employees each year, including around 300 lifeguards, is no small task. Water World begins planning in the fall, opens applications around February, and relies heavily on returning staff and word of mouth to fill roles quickly.

What stands out is the emphasis on employee experience. Many staff members are in their first jobs, and leadership treats that responsibility seriously. Investments in compensation, engagement programs, and leadership development have led to stronger retention and better performance.

This is a shift many organizations are still making. Instead of viewing seasonal or entry-level roles as transactional, successful organizations are treating them as foundational experiences. When employees feel supported and engaged, they stay longer, perform better, and contribute to a stronger overall experience.

Marketing works best when the experience delivers

Water World markets year-round, even though it operates for just a few months each year. Strategies include digital campaigns, media relations, email marketing, and local partnerships. But one of the most effective tactics is also one of the simplest: capturing authentic guest experiences. Interns are often sent into the park to create organic social content that reflects real guest reactions.

This aligns with a broader truth. Marketing can drive awareness, but it cannot compensate for a weak experience. As one leader noted, if the product does not deliver, people will not come back. For organizations with limited marketing budgets, this is encouraging. Authentic, experience-driven content is often more effective than polished campaigns. The key is to create something worth talking about.

Continuous reinvestment keeps experiences relevant

One of the more difficult aspects of managing a long-standing attraction is deciding when to update or replace existing features. Water World refers to this process as “reimagination.” Decisions are based on a combination of guest feedback, usage patterns, maintenance needs, and overall experience quality. Even when an attraction has strong sentimental value, it may no longer meet current expectations.

These decisions are not easy. Leaders recognize the emotional connection guests have with legacy attractions, and they often provide opportunities for closure, such as farewell events or final visits. The lesson here is that maintaining relevance requires ongoing investment. Whether it is updating a facility, refining a program, or improving an experience, organizations need to balance nostalgia with evolving expectations.

Safety and preparedness cannot be static

Safety has always been a priority in aquatics, but expectations have evolved. Water World has expanded its approach to include comprehensive emergency action planning, cross-agency collaboration, and large-scale drills involving multiple jurisdictions. This level of preparation reflects a broader shift. Public-facing organizations must be ready for a wide range of scenarios, many of which were not top of mind a decade ago.

For smaller agencies, the takeaway is not to replicate large-scale drills, but to build relationships. Engaging local law enforcement and first responders, sharing facility knowledge, and developing clear protocols can significantly improve readiness.

The real impact is human, not operational

It is easy to focus on metrics such as attendance, revenue, or staffing. But the most meaningful outcomes are harder to quantify. Water World is the largest youth employer in its county, giving thousands of young people their first job experience. Former employees return with their own families. Longtime guests maintain decades-long relationships with the park.

These connections are what turn a facility into a community asset. They are also what justify the effort, investment, and complexity required to operate at this scale. 

At its best, parks and recreation work is about creating places where people connect, grow, and create memories. Water World shows what that can look like when those goals are paired with strong strategy and execution.

Key takeaways

Not every organization will operate a water park. But many can apply the underlying principles:

• Think strategically about revenue-generating services that support your mission

• Focus on fundamentals, regardless of scale

• Treat staffing as a long-term investment

• Let the customer experience drive your marketing

• Continuously reinvest in relevance

• Build strong safety and community partnerships

Innovative strategies for parks, recreation, and libraries

BerryDunn's consultants work with you to improve operations, drive innovation, identify improvements to services based on community need, and elevate your brand and image―all from the perspective of our team’s combined 100 years of hands-on experience. We provide practical park solutions, recreation expertise, and library consulting. Learn more about our team and services.

Veterinary practice owners can miss important financial warning signs even when revenue is growing. This article explains 12 common blind spots, including weak cash flow visibility, outdated pricing, missed charges, labor inefficiencies, and limited long-term planning. Without financial visibility, practices risk lower profitability, greater stress, and diminished long-term value and resilience.

Who this applies to: Veterinary practice owners, managers, and financial directors.

What is a financial blind spot?  

Financial blind spots are operational areas where practice owners: 

• Lack visibility into the true financial health of the business 
• Make decisions without the full financial picture 
• Focus on activity rather than profitability 

These gaps affect more than the bottom line—they can impact profitability, cash flow, business value, and owner stress. 

Why does financial visibility matter to veterinary practices? 

Financial visibility is crucial to the success of a business. While busy teams, growing revenue, and strong client demand might give the appearance of success, many owners are still asking questions that indicate poor visibility: 

• “We’re busier than ever. Where is the money going?” 
• “Why does cash feel tight despite revenue being up?” 
• “I don’t fully understand my financials. What am I missing?” 

Financial visibility gaps and their impact on veterinary practices
 

1. Busy doesn’t always translate to profitability: Common signs for this problem are revenue growth with shrinking margins, longer staff hours with little financial improvement, and growth creating complexity rather than more profit. Activity does not equal profitability. 

2. Profitable on paper while stressed in reality: Profitability on paper can mask cash flow problems, causing stress for veterinary practice owners. This stress often leads to cautious or anxious behaviors that affect decision-making and growth.  

3. Limited financial visibility: Many businesses limit financial reviews to quarterly, tax season, or in response to a problem. Often, the books and records have not been prepared in a clean, consistent fashion that allows for proper analysis and comparisons. Without a regular review of accurate records, owners cannot spot trends early, adjust pricing or costs, and make informed decisions for growth. Monthly reviews are critical. 

4. Pricing that hasn’t kept pace: Don’t underestimate the impact of inflation, rising labor costs, technology expenses, and operational complexity. The result can be eroding margins and declining profits regardless of strong demand. 

5. Revenue leakage through missed charges and excessive discounting: Missed charges often occur during rushed checkouts, handoffs, or emergency cases in veterinary clinics. Leakage lowers staff value, contributes to burnout, and causes financial losses. Addressing leakage requires awareness and disciplined processes—not aggressive price increases. 

6. Revenue mix distortions: Non-core revenue streams can distort financial benchmarks if not separated from core medical income. Segmenting revenue properly reveals true performance trends and reduces confusion in benchmarking. Clarity in revenue mix is necessary for making good strategic decisions. 

7. Misaligned compensation structures: Compensation structures can unintentionally create challenges. For example, problems can occur if pay is not aligned with productivity, incentives reward activity instead of profitability, and ownership compensation is unclear—all of which make growth harder to sustain and adversely affect profitability.

8. Labor growth without clarity on productivity: Increasing staff without improving productivity can reduce overall profitability and operational efficiency. Normalized overtime and full schedules can mask inefficiencies and reveal financial gaps during growth. Careful financial review is essential to align staffing growth with sustainable and value-enhancing results. 

9. Inventory as a hidden cash trap: Overstocking and expiration can lead to drained cash and increased cost of goods sold in veterinary practices. Simultaneous complaints of stockouts and excess supplies highlight poor inventory management systems. When inventory is mismanaged, it ties up working capital, impacting cash flow and profitability. Maintaining awareness of inventory dynamics helps to identify when operational controls require improvement.

10. Don’t ignore the balance sheet: Many practice owners focus on income statements, neglecting balance sheets, which are crucial to financial health. Liquidity, leverage, and equity growth are vital indicators of business resilience and exit readiness. Ignoring the balance sheet limits strategic options and weakens negotiating power during business transitions.

11. Owner draws and hidden value erosion: When an owner treats the business like a personal ATM, it reduces business equity and limits strategic options. If personal lifestyle growth surpasses business earnings, long-term business value declines. Identifying value erosion early helps to preserve business options during expansion and sale. 

12. Lack of long-term financial planning: Many businesses plan for next month or next quarter instead of intentionally building the business over time. It’s important to step back to consider a long-term growth strategy, owner succession, business valuation, and exit planning. 

Key takeaways

• Make financial visibility a priority. 
• Pay attention to profitability, not just revenue. 
• Be strategic with pricing. 
• Ensure compensation structures are aligned. 
• Focus on long-term planning. 

BerryDunn can help 

Do you need help understanding the financial story behind your practice? The veterinary world is uniquely complex. As a veterinary accounting and financial management consulting firm, our proactive approach to client service, ability to anticipate potential problems and tax burdens, use of cutting-edge technology, and focus on industry trends clearly demonstrates our commitment to providing the best quality services for our clients, without geographic limitation. Helping a practice grow and succeed is one of our fundamental strengths. Learn more about our team and services. 

Read this if you are a business owner or an advisor to business owners.

This article is part one of a three-part series. 

With continued uncertainty in the business environment—driven by shifting economic conditions, market volatility, and evolving tax policy—now may be a good time to utilize trust, gift, and estate strategies in the transfer of privately held business interests. Periods of uncertainty can create an opportunity to free up considerable portions of lifetime gift and estate tax exemption amounts through transfers, particularly as uncertainty and increased risk serve to reduce business valuations.  

An element to consider is the ability to transfer noncontrolling interests in a business. These interests are potentially subject to Discounts for Lack of Control (DLOC) and lack of marketability. This may further reduce the overall value transferred through a given strategy, potentially offloading a larger percentage of ownership in a business while retaining large portions of the gift and estate lifetime exemption. For the first part of this series, we’ll focus on the DLOC.

What is discount for lack of control?

In the context of a hypothetical willing buyer and willing seller, the buyer may place a greater value on an ownership interest with the ability to make changes at their discretion, compared to an alternative ownership interest lacking control. Simply put, buyers like to be in control, and they will pay less for the investment if the interest lacks these characteristics.  

When valuing noncontrolling business interests, there is an inherent discount to full value recognized to reflect the fact that the subject interest does not hold a controlling position. As a result of this discount, the value of a noncontrolling interest in a company will differ from the pro-rata value per share of the entire company. DLOCs alone commonly reduce the value of the transferred interest by 5% to 15%. 

All else being equal, a noncontrolling ownership position is less desirable (valuable) than a controlling position. This is because of the majority owner’s right to control any or all of the following activities:

• Managing the assets or selecting agents for this purpose 
• Controlling major business decisions, asset allocation choices, setting salary levels, admitting new investors, acquiring assets, selling the company, and declaring/paying distributions

Market-based evidence of proxies for DLOCs can be found within the following subscription-based databases, including but not limited to: 

• Control premium studies published in the Mergerstat^® Review series by FactSet Mergerstat/Business Valuation Resources
• Closed-end fund data
• The Partnership Profiles, Inc. Minority Interest Database and Executive Summary Report on Re-Sale Discounts for applicable entity types

In addition to these resources, to fully assess the degree of discount applicable to a subject interest, consider company-specific factors when estimating the DLOC. The degree of control for a subject interest may be impacted by relevant state statutes and the governing documents of the subject company. These factors are analyzed in conjunction with the current operational and financial policies established and implemented in practice by management to establish a comprehensive view on the applicable degree of discount.

Hypothetical business owners are knowledgeable of the facts and circumstances surrounding a business interest. They take a close look at what they are buying before they make an offer. Like most owners, they prefer to be in control and are generally unwilling to pay the pro-rata value for a minority interest in a business that lacks control. To assess an appropriate discount for lack of control, consider resources such as those referred to above, then ensure the selected discounts are appropriate based on the factors specific to the company and interest being valued. 

Key takeaways

• Use periods of uncertainty to consider trust, gift, and estate strategies for transferring privately held business interests. 
• Recognize that noncontrolling interests may qualify for discounts for lack of control, reducing reported transfer value. 
• Define a DLOC as the price reduction buyers apply when an ownership stake cannot influence decisions or change operations. 
• Expect DLOCs alone to commonly reduce transferred-interest value by 5%–15%, making minority value differ from pro‑rata value. 
• Support a DLOC with market evidence (control premium studies, closed-end fund data, minority interest databases) and company-specific factors (state statutes, governing documents, operating policies). 

BerryDunn can help 

BerryDunn’s credentialed business valuation specialists bring clarity to the complexities of valuation while adhering to strict development and reporting standards. We render an independent, objective opinion of your company’s value in a reporting format tailored to meet your needs. If you have questions about your unique situation, or would like more information, please contact the business valuation consulting team.