Valuing Pass-Through Entities

Appendix BCase Study: Bob's Cruises

Part I: Introduction

“Welcome aboard! My name is Bob.”

That is how I start most of my conversations these days, now that I am the proud owner of the most successful three-hour glass-bottomed, scuba diving excursion adventure in the Caribbean. I have more customers than I can handle, and they all want to learn how a former accountant from Long Island, yours truly, became the owner of a vacation dream-making machine. Well, here is how it happened.

My story began approximately five years ago. The date was July 16, 2013, and the time was 2:00 P.M. I was 35 years old, not married, and, as of one hour before, unemployed. The privately owned family business where I had spent the past 10 years had just fired me, and I was finding it difficult not to reflect on the events of the past few years.

I was a rising star in my company, a loyal and skilled accountant—but it didn't matter when the recession hit and the recovery never materialized. Although I survived several rounds of “rightsizing,” my company was eventually swallowed by a much larger firm, a whale in comparison to our minnow. When the whale swallows you, unless your name is Jonah and you're from Galilee, don't expect to survive. Since I was only Bob from Long Island, I didn't.

When I thought about the past few years, I realized that it was time for me to move on. I had gotten tired of working at a desk and needed more interaction with nonfinancial people. I also learned that all fortunes ...