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With the implementation of 409a over the past several years, we have seen and heard it all. Frustrated, mad and confused executives, auditor/client disagreements, auditor/valuation firm disagreements; however, there are a large portion of companies that handle 409a compliance with ease- minimal time and minimal stress. Knowing that the regulations will be enforced by the end of the year, we reflected back over the 200+ 409a valuations we have done over the past several years to comment on what works (and doesn't work). Here's some thoughts on how to make 409a compliance less time consuming, stressful and costly:
· Assemble a team and get them on the same page- early. As you pick your valuation firm, have a pow-wow with your auditor (and even legal counsel) to set the standards and expectations. Most reputable valuation firms prefer to talk to your auditor before the project begins (and sometimes even before the contract is signed). Buyoff on the front end helps control back end fees and headaches.

· Set your budget and expectations early and revisit at the end of each year (perhaps after your audit). Reflect on the prior year and look forward to the upcoming year. How many valuations feel appropriate? Set up a contract with your valuation firm with a timeline and get your fees locked in for the year. If you elect to do multiple valuations, some firms will be proactive and set everything up ahead of time and call you to keep on track when the valuation date approaches.

· If significant events (or even semi-significant events) occur between valuation dates, make two calls- one to your auditor and one to your valuation firm. Run it by them. If your stock price triples between two valuations, the auditor will want to reflect over the interim period to pinpoint what caused the value change. Being proactive helps considerably. By the way- significant events can be described as events which could change the value of the stock- up or down (i.e. financings, major contracts, milestones or significant hires). Smooth valuations are ones with no major surprises.

The companies that we find deal the best with 409a are the companies that have taken a proactive approach and elect to do multiple valuations per year. They set budgets and expectations, keep open communications with their auditors and valuation firms, and adhere to a consistent timeline. As with all new regulations, the adoption period will come with some frustrations; however, tackling some of these issues will help executives ease the process and devote their time and effort to what they do best!

Category(s): IRC 409A
Posted by Lauren Hall at 08:38 PM | Permalink | Comments (0) | TrackBacks (0)