Business valuations are not a commodity. There are many differentiating factors that elevate one firm above another in terms of quality, expertise, certification, and service. A number of elements should be considered in determining which business valuation firm will best service your particular needs and the engagement at hand. Whether dealing with Shareholder matters (buyout, buy-in, dispute, partnership agreement); considering exit strategy options; developing an employee incentive plan; estate planning; or, tax matters, working with the right business valuation firm can make all the difference in being able to achieve your objective efficiently and cost effectively.
The following are some of the primary factors that will enable you to choose the right business valuation firm:
Certification and Accreditation. The two primary designations in the business valuation profession are the CVA certification (Certified Valuation Analyst) issued by the National Association of Certified Valuation Analysts and the ASA certification (Accredited Senior Appraiser) issued by the American Society of Appraisers. A certified professional is well versed in IRS Revenue Ruling 59-60, the backbone of valuation standards, as well as the components and valuation methods necessary in each valuation engagement. The CVA and ASA accreditations are crucial when it comes to credibility and acceptance by the IRS, courts, Shareholders, and any other intended users as well as withstanding any scrutiny presented by an opposing report in litigation scenarios.
Experience & References. A business valuation firm should be able to demonstrate that they have experience within the subject company’s industry and welcome providing references for you to speak with.
Collaboration Among You & Your Advisors. It is imperative that a business valuation firm establish and maintain active and open lines of communication with the Company’s Principal(s) as well as their advisors to clearly understand the underlying goal of each valuation engagement. All aspects of a business are analyzed when providing a comprehensive valuation report.
Access to Databases and Other Pertinent Information. A professional valuation firm must have access to comprehensive resources, research, databases, and tools for each analysis. Elements such as private company transactions, economic data, industry reports, discount studies, and control premium data, among many other resources, need to be reviewed and considered. The more resources a firm has at its disposal, the more complete and credible the engagement.
M&A Market Place Exposure. A Business Valuation firm should have an understanding of the merger and acquisition marketplace especially when dealing with valuations performed to assess exit strategy considerations. Business sale experience provides added credibility, as well as unique insight into current market conditions, transactional “market value,” and up-to-date comparable industry multiples.
Multiple Valuation Approaches. Deriving results from multiple methodologies is critical to the valuations process. A valuation firm should not only consider all three approaches in calculating value (the asset, market, and income approaches), but they should also utilize multiple methods throughout their analysis to increase credibility and avoid scrutiny.
Customized Reports. Every company and every purpose is unique; however, many firms provide reports that are heavily “templated” and lack customization. A qualified business valuation firm should provide a highly customized report that addresses the specifics of the company’s history, operations, financial performance, and intangible risk factors and value drivers as well as the purpose of the engagement.
Report Comprehension & Review. Analysis of value should be detailed while easy to understand by a wide audience of varying backgrounds and professions. This enables the report to be utilized effectively for the intended purpose and thereby maximize its benefit. Moreover, a quality valuation firm will schedule meetings and conferences with the business owners and/or associated professionals to review the valuation report upon completion. These detailed post-valuation reviews confirm the complete understanding of the report by all interested parties to assure that the valuation objectives were achieved.
Prompt Turn-Around Time. Valuations are required and/or sought for a specific purpose, wherein timely completion of engagements is typically important. A qualified business valuation firm must demonstrate their commitment to the engagement through the management of open communication with all interested parties in order to identify and achieve the time line goals of the client. This discussion should happen prior to entering into any agreement and a clear understanding of the average turn-around time should be established. Typically, a report can be completed within 10 to 15 business days upon receipt of the requisite information.
No Conflict of Interest. When conducting a business valuation, careful attention must be paid to avoiding conflicts of interest. While some accounting firms provide valuations, many endorse their clients to use an independent firm to avoid a potential conflict of interest that would compromise credibility due to the lack of independence.
Fixed Fee Pricing Structure. It is important that you have a clear and concise understanding as to the fee for services before committing to an engagement. Experienced valuation firms understand the approximate amount of work involved and should provide you with a fixed fee quote. Generally, the cost of an engagement will vary depending upon purpose, complexity, and other factors. Additionally, it is common for half of the total fee to be paid upon signing an engagement and the remainder upon completion of the report and issuance of a final draft.
There are a multitude of factors that need to be considered when evaluating business valuation firms and professionals. It is important to perform your due diligence on your available options as you would in any other aspect of running your Business. Ultimately, familiarize yourself with each valuation firm’s process and make sure they have a clear understanding of the purpose at hand to ensure you receive high quality service and an unrivaled business analysis.