Selecting a Business Valuation Professional
February 2006
Most business owners will eventually need to find out how much their business is worth. This is referred to as a business valuation or sometimes called an appraisal. Performing a formal business valuation is common when purchasing or selling a business. It is also crucial during funding and financing transactions with banks and investors.
Business valuation can be a complex exercise at best, but a little knowledge of the basics will save you time and money when you eventually need to hire a professional valuation expert. There are a number of professions that offer business valuation or appraisal services.
CPA's ? Many offer valuation services in addition to their normal accounting, auditing, and tax work. CPAs often have a combination of business, accounting, finance, and tax knowledge that is well suited for valuing businesses.
Financial Consultants - Financial consultants have a wide ranging and varied level of expertise and backgrounds. It may range from investment banking to corporate finance or securities analysis. Picking the right consultant can be tricky so check references and credentials carefully.
Business Brokers - Brokers normally stick to valuing the businesses they have listed for sale. They tend to rely on quick and simple methods that work well for determining asking prices, and are not intended to be formal valuations.
No one type of valuation professional is inherently better than another. As with any task, it's a matter locating the appropriate tool for the job. You must examine each professional's qualifications carefully and within the context of the specific appraisal to be performed.
A good place to start is to check for the proper accreditation and experience. When selecting a professional to assist you in your valuation needs, it is a good idea to make sure that they have one or more of the widely recognized industry accreditations. This can help indicate basic competence and also may be a perceived value to others who might rely on the appraisal or subject it to a critical review.
A list of the most common business valuation credentials and the organizations that offer them are:
The American Institute of CPAs (AICPA) grants the Accredited in Business Valuation (ABV) credential that requires being a CPA, passing an exam, and appraisal education and experience. Their online ABV directory can be accessed at www.aicpa.org/accredrefweb/abvsearch.asp.
The American Society of Appraisers offers the Accredited Member (AM) and Accredited Senior Appraiser (ASA) designations that require passing exams and valuation education and experience. Their online member directory can be accessed at www.bvappraisers.org/find.
The National Association of Certified Valuation Analysts (NACVA) offers several designations including the Certified Valuation Analyst (CVA) that require passing an exam and valuation education. Their online member directory can be accessed at www.nacva.com/US_guide/US_guide.html.
The Institute of Business Appraisers offers several designations including the Certified Business Appraiser (CBA) that require passing an exam, and varying degrees of valuation and appraisal education and experience. Their online member directory can be accessed at www.go-iba.org/directory.asp.
No one accreditation is inherently better than the others. As with any professional designation, having one is also not a guarantee of competency or quality, but it does demonstrate that the individual has met the minimum requirements for that accreditation. Searching the member directories of these organizations is one good way to begin the process of selecting a valuation professional near you.
Before making a final decision, you should personally interview each candidate about fees and turnaround time. Often the first question asked is whether they have experience in valuing businesses like theirs. Although this is a good question, regular and recent valuation experience is much more important than specific industry knowledge. Basic valuation procedures are generally the same regardless of the industry and thus selecting a valuation expert solely on industry knowledge is not enough. Ask to see samples of their valuation reports. You may not understand some of the technical finance, but you should be able to make sense of what was done and why. The valuation result or conclusion should also make sense to you.
After the interview, select the most qualified professional that meets the rest of your criteria. A checklist or scorecard that lists each important factor and rates each professional on every factor can help make the process less confusing and more logical.
Looking for a qualified professional to do a business valuation is not easy. If you take some time, do some research and approach it systematically, you will find a qualified professional that is right for you.
Back
Financial Consultants - Financial consultants have a wide ranging and varied level of expertise and backgrounds. It may range from investment banking to corporate finance or securities analysis. Picking the right consultant can be tricky so check references and credentials carefully.
Business Brokers - Brokers normally stick to valuing the businesses they have listed for sale. They tend to rely on quick and simple methods that work well for determining asking prices, and are not intended to be formal valuations.
The American Society of Appraisers offers the Accredited Member (AM) and Accredited Senior Appraiser (ASA) designations that require passing exams and valuation education and experience. Their online member directory can be accessed at www.bvappraisers.org/find.
The National Association of Certified Valuation Analysts (NACVA) offers several designations including the Certified Valuation Analyst (CVA) that require passing an exam and valuation education. Their online member directory can be accessed at www.nacva.com/US_guide/US_guide.html.
The Institute of Business Appraisers offers several designations including the Certified Business Appraiser (CBA) that require passing an exam, and varying degrees of valuation and appraisal education and experience. Their online member directory can be accessed at www.go-iba.org/directory.asp.
