How to Select a Business Valuation Firm that is best for you or your client
In making a determination as to which business valuation firm will be the best fit and do the best job for you, a number of factors should be considered. Business valuations are NOT a commodity – there are many differentiating points that elevate one firm above another in terms of quality, expertise, certification, and service among other areas. Whether dealing with Shareholder matters (Buy-out, 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 mean all the difference in being able to achieve your objective in the most profitable and/or cost effective manner. The following are some of the primary differentiators that will enable you to choose the firm that you are best served working with:
Work closely with you and your advisors. Generally, a business valuation is needed as part of a bigger picture objective relating to Shareholder issues, trust and estate matters, transactional matters, etc. It is imperative that the business valuation firm invest the time and attention to work closely with the Principal(s) and their advisors to clearly understand the underlying goal of what the parties desire to accomplish. Valuation approaches and results can vary significantly depending on the purpose/objective of the valuation, hence it is critical to work with a firm that understands this and will thoroughly communicate with the members of the team. Certification and Accreditation. The two primary accreditations 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. These certifications are crucial when it comes to credibility and acceptance by the IRS, Shareholders, the courts or any other intended users. Failure to use a firm that is certified will likely to damage the credibility and create difficulty if challenged.
Access to Databases, subscriptions and other pertinent information. A professional valuation firm must have access to a multitude of information resources when performing the Business Valuation services. This includes databases of completed transaction (Comparables), industry value drivers and risk factors, economic data, etc. The more resources a firm have at its disposal, the more complete and credible the engagement.
M&A Market Place Exposure. A Business Valuation firm should have an understanding as to the Merger & Acquisition marketplace. This helps inject a “real world” understanding to the engagement. This business sale and acquisition experience provides added credibility, unique insight into current market conditions, transactional “market value” and up-to-date comparable industry transactions.
Prompt Turn-Around Time. – Valuations are required or sought for a specific purpose, wherein timely completion of engagements is typically an important factor. A qualified business valuation firm should be able to commit to completing a valuation within 10 to 15 business days of receipt of the requisite information.
Multiple Business Valuation Approaches. A Business Valuation firm should use multiple valuation methodologies when assessing valuation. Deriving results from multiple methodologies is critical to the process. Companies that rely on one or two methodologies lack credibility and can open things up to scrutiny.
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 that their clients use an independent firm to avoid a potential conflict of interest that would compromise credibility due to the lack of independence.
Experience & References. A Business Valuation firm should be able to demonstrate that they have Business Valuation experience within your and related industries. A quality firm should welcome providing references that you can contact if so desired.
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. While the cost of an engagement will vary depending upon purpose, complexity, company size and other factors, generally the fee will be half paid upon engagement and the remainder upon completion of the Engagement.
Stand up to Scrutiny and Challenge. An experienced valuation firm will be accepted by many highly respected accounting firms, stand up to legal scrutiny, and when appropriate, conform to IRS Revenue Ruling 59-60. When applicable a valuation firm should offer related litigation support and expert witness services.
Customized – Not Boilerplate. Many firms provide reports that are heavily templated and lack customization. Every company and every purpose is unique. A qualified Business Valuation firm should provide a highly customized report that addresses the specifics of the company as well as the purpose. Analysis of realistic value should be comprehensive, yet easy to understand. The format explains the methodologies, reasoning and assumptions in plain, easy to follow language. This enables the report to be utilized effectively for the intended purpose and thereby maximize its benefit.
Report Review. – A quality valuation firm will build in meetings and conferences with the business owners and/or associated professionals to review the valuation report upon completion. These detailed post-valuation reviews confirm complete understanding of the report to assure that maximum benefit is derived.