Adam Newman Dives Into Forensic Accounting
September 19, 2018
Erik Wolf: Hello and welcome to another scintillating edition of The Denver Executive Association Trusted Advisor Podcast. Today I’m in my personal crow’s nest high atop Denver University where about 30 of Denver’s top business executives meet twice a month. We talk, we share knowledge, we share connections and we share business. And twice a month one of them is contractually obligated to chat with me. My name is Erik Wolf and I am the digital, I am not the digital marketing agency, I am with the digital marketing agency, estound. We serve small and mid-sized business owners with CMO-level digital strategy, website design and development, Search Engine Optimization, pay-per-click advertising, marketing automation and much much more. My guest today is Mr. Adam Newman, a forensic accountant at Crowe, one of the country’s top accounting firms. Mr. Newman has over 20 years experience providing valuation forensic accounting. It doesn’t really roll off the tongue, does it?
Adam Newman: No it does not.
Erik Wolf: Tax and business advisory services in financial reporting, tax reporting, commercial litigation and more. So I hope you’ll all join me in saying, “Hello Newman.” Not the first time you’ve heard that I’m guessing.
Adam Newman: It’s not the first time. But thank you, Erik.
Erik Wolf: Sorry. So first things first. What’s a forensic accountant?
Adam Newman: Forensic accounting is accounting that’s done in the context of litigation. So there’s basically going to be one party suing another party.
Erik Wolf: So not exactly fun times?
Adam Newman: Not exactly fun times. Definitely not.
Erik Wolf: And so what do you guys contribute to that?
Adam Newman: Well we contribute sound financial analysis to that process whether it’s an actual litigation engagement or an engagement that’s outside of litigation where we’re able to apply integrity, objectivity, and independence to arrive at sound financial conclusions for our clients.
Erik Wolf: So accounting in general. Let’s be honest, we got some stereotypes, you guys kind of get a bad rap. So tell me, let’s show people you’re not just a pencil pusher. What is fascinating about accounting, what’s so interesting about accounting and about the financials that made you want to build a decades-long career.
Adam Newman: Well for me, for what we do with business valuation, for example, it’s very much an art and a science. So a lot of folks think of it as nothing more than addition and subtraction. But from my perspective, there’s a lot of economic analysis, a lot of qualitative analysis of a business that gets involved in determining the value of a business or an intangible asset. So many folks out there think that it’s just simple math, all they’re doing is pushing calculator buttons all day. But there’s a lot more to it. There’s a lot of judgment involved which is what’s really interesting to me.
Erik Wolf: What’s something that you would say that most people don’t know or don’t realize about the type of work that you do as an accountant or the type of work that happens at Crowe.
Adam Newman: I think a lot of folks think that valuation is just a matter of plugging numbers into a computer program or working in Excel and out comes a solution. There’s a lot more to it. Excel and a spreadsheet is just a means to an end and the numbers part of it involves so much judgment and grey area and thought that there is just such a that’s the art process that I was making reference to before.
Erik Wolf: What would you say is an example of something that people take for granted as being a black and white sort of number but that you feel is open to interpretation and that you’ll put your artistic flavor on, so to speak.
Adam Newman: Sure. So a good example of that would be a situation where we’re valuing a business entity and we’re looking at what we would call guideline public companies, which are are companies out there in public stock markets and they have established trading prices and financial metrics and we can take those metrics and apply those to the subject company. So for example, a guideline public companies may be trading at seven times EBITDA, which is a fancy valuation term and our subject company is generally going to be a private company that is much smaller in size, not as well diversified as these public companies. So we have to determine how much to adjust or what adjustments to make to those public company multiples. So if the public companies are trading at seven times EBITDA, how do we adjust that seven times figure to adjust the specific facts and circumstances of our subject company that we’re valuing. And that’s the part where as much as we’d like that to be as scientific as possible and it is, there still significant judgment involved in making that adjustment.
Erik Wolf: That makes a lot of sense. Now I know that that you guys at Crowe, this is just part of the practice. So talk to me about your team and what you guys do at the Denver office because you guys have offices everywhere.
Adam Newman: Yeah we have over 40 offices throughout the country and internationally as well. But we are very much one team. So specifically our valuation group is a national model. So we have folks throughout the country, coast to coast and we operate on, from a very team-oriented perspective. So the valuation subject company could very well be in Texas and we could have someone from Denver and Chicago and Dallas working on that particular engagement and we will staff those engagements based on the expertise of the individuals involved and through technology that we have internally, were able to successfully integrate our national team on these projects that are national in scope.
Erik Wolf: Very cool well and obviously to have that resource base is obviously a great asset to your clients. Can you give me an example of just one of those instances where the client comes to you in one of these just awful situations and you guys step in and you make everything smell like roses? Give me one of those stories.
Adam Newman: Yeah we’ve definitely had our share of examples where we’ve gotten brought in at the last minute either the client didn’t have a valuation firm on board or did have a firm onboard and discovered there was let’s say a conflict of interest. They have a statutory filing date, let’s say with their financial statements for SEC purposes so they have a significant deadline. And we’ve been able to come in and because of our national presence, our national team process, we’ve been able to staff up for that engagement and get the job done in a very expedited basis to meet the client’s needs and to meet the client’s auditor’s needs as well because in a lot of the work we do for financial reporting purposes the clients auditors are going to be heavily scrutinizing their clients independent valuation firm and because we have so much experience in this area, we know what the auditors are looking for and we’re proactive in discussing the client’s needs and the auditor’s expectations at the very beginning of our engagement.
Erik Wolf: So we told you when you sat down that this was the trusted advisor podcast and so the bosses upstairs say that I have to ask you for some free advice. So what’s one tip that you would give someone who is looking to value their business?
Adam Newman: Well I think one tip I would give a business owner is to have their records in order, if possible have a financial statement audits, have systems in place that allow them to produce accurate financial records for us to look at.
Erik Wolf: So my shoebox full of receipts, you don’t want that, that’s not going to help.
Adam Newman: Probably not the best way for us to do a valuation.
Erik Wolf: Probably not the best filing system I gather. So alright, well thank you for being here Adam, really appreciate your time. What’s the best way for folks to get in touch with you if they want to talk business or about their valuation?
Adam Newman: Sure folks can contact me directly at my business direct dial telephone 303-831-5089 and my email address is firstname.lastname@example.org.
Erik Wolf: Well thank you so much for being here Adam. Really appreciate it, really appreciate your time, you gave us a lot of great info and thank everyone who takes the time to listen to the DEA Trusted Advisor Podcast. We’ll talk to you next time. Thank you so much.
Adam Newman: Thank you, Erik.