Business Valuations, according to several academic sources is one of the fastest growing niche practices in the United States, and all projections are that this will continue to occupy a leading spot in the accounting profession in the ensuing years. Several professional organizations in the U.S. such as the National Association of Certified Valuation Analysts, the AICPA and the Institute of Business Appraisers now cater the growing need for valuators and have adopted professional qualifications and credentials for their members.
The Need
Valuations are needed in several instances such as:
Purchase or Sale of Businesses
Liquidation of Entities
Gifting and Estate Tax Planning Strategies
Asset Allocations in Divorces
Buy Sell Agreements
Business Financing
Fairness Opinions for Shareholders
Litigation Support and Dispute Resolutions
Choosing a Valuator
It is critical that the right professional be chosen for the project at hand. Therefore, it is essential that the following be definitely considered:
Professional needs to have the necessary experience
Good presence of mind and effective communication skills are a must
Professional designations and continuing education in the field are necessary
Absolute independence of the professional is required and mandated
Obtaining references and past industry experience would enhance the decision of choice
Reviewing the professionals experience serving as an expert witness may be necessary at a later date
Factors Affecting the Valuation
In coming up with a valuation report the valuator is required to come up with a value, which he or she can attest to. This takes into consideration several facets, which form the tenets of a sound valuation process.
Economic Trends have a bearing on mostly all valuations
Specific Industry factors need to be considered in all situations
Prevailing Competition is a critical factor
Market Position such as reputation, pricing, diversification of customer base are essential components of a businesses value
Intangibles and Goodwill which are the true worth of any business have to be taken account of, and by their very nature are difficult to quantify in several instances
The Final Report
Conclusions of a valuator are contained in a report as a vital component of the engagement. A well documented report is always composed of the following:
The purpose of the Valuation
Discussion of the Valuation process and the methodology adopted
A history of the business being valued
Composition of the ownership interests of the entity being valued
Financial Analysis and conclusion of value
The above touches on some of the very fundamentals of Business Valuations. Each valuation engagement is in itself a unique one and due thought process and consideration is key to the final determination of value.
