Why should I have my business valued?
At some point in time during your business’s “life,” the question will be asked. Personal circumstances will vary; however, it is inevitable someone or another business will want to know. Knowing the value of your business can aid in strategic planning or personal/family wealth planning. The value of your business is powerful information, especially when it comes to decision making. Some broad areas and reasons why a valuation expert should be engaged include estate and gift planning, litigation, financial reporting, strategic planning, mergers, and acquisitions, among many others. Situations, where a business valuation is needed are outlined in our list of services.
What makes Valuation Resource Group different from other services?
Our principals are all seasoned business professionals with different operating backgrounds. We combine the theoretical tenets of our profession with the real practical application that only comes with hands-on experience working inside the same types of companies we help today. As a client, you also have access to the principals of the firm regularly – we do the work and will have intimate knowledge of your situation as we assist in customizing a solution that works for you.
What do I need to provide you with to obtain a valuation?
Typical information required to start a business valuation includes up to five years of financial statements and tax returns; any budgets or forecast prepared by the company; information about the industry and market the company operates in; detail on specific line items which will depend on the type of business and how it is run on a day-to-day basis. Many times, the scope of the project will dictate whether more or less detail is needed. For example, litigation related projects tend to have more detailed information requests, including general ledgers and related supporting documentation. On the other side, if we are consulting and not providing a formal opinion of value, we will most likely need less information. We welcome the opportunity to discuss your specific needs and develop a customized approach to create a very unique solution.
Who is a typical client, and how is the process coordinated?
In most cases, we are hired directly by you; however, the introduction to our services is made possible by your (or friend who is an) accountant, attorney, boards of directors/advisors, other business owners, CFOs, controllers, estate executors, exit planning professionals, financial planners, bankers, private equity groups, and venture capital groups.
For tax-related valuations, such as gift or estate tax, we can work directly with the client’s trusts and estates (T&E) attorney to begin the process of identifying what is being appraised, the date of the valuation, and the purpose. We then work directly with the company’s owner/accountant/CFO and controller.
What is the difference between an appraisal, a valuation, and an evaluation?
Nothing significant, although evaluation is not a commonly used term, all of the terms have been used interchangeably. The more commonly used terms are appraisal or valuation – in short, it is the act or process of determining the value of a business, business ownership interest, security, or intangible asset.
When I hire an accountant, I typically expect a CPA. What do I look for in hiring a business appraiser?
Professional designations and experience are some of the most important factors to consider in selecting a business appraiser. It is not common knowledge of what it takes to be competent at appraising businesses, especially smaller, privately owned ones.
Some professional designations are more challenging to obtain than others. And while there are various designations available to professionals, the amount of experience in the profession and the amount of time spent doing valuation is just as significant, if not more, in some instances.
Can I have my company’s CPA value my business instead of hiring an independent appraiser?
If your CPA has received formal training in business valuation (including the particular situation at hand), they do this work regularly , and there will be no perceived conflict of interest in the condition for which you are getting your business appraised, no problem.
However, while most CPAs have achieved a high level of competence in accounting and/or tax matters, the vast majority of CPAs do not have the necessary expertise and training to value a business. The ones that do have passed a rigorous exam and have demonstrated involvement appraisals.
Accounting and appraisal skills, although overlapping, are fundamentally different. Generally speaking, accountants are trained to focus on historical information. Appraisers look forward and sideways at comparable businesses in the marketplace to help assess your business’s value.
Throughout most valuation engagements, we work closely with our clients’ CPAs (as well as attorneys and other trusted advisors) to ensure a complete and thorough appraisal of your business.
How long should I expect it to take to get my business appraised?
Depending on need, scheduling, availability of information, the cooperation of the management of the company being valued, type of report required, it typically takes about 4 to 8 weeks to render a documented opinion of value. However, many times a full appraisal is not needed; as a result, when we are hired as a consultant, that time frame can be accelerated.
How much does a business appraisal cost?
It depends. The breadth and depth of the work that you require, the purpose of the appraisal, the availability of information, and your business’s complexity are the most critical factors in determining cost. Our work may vary from several hours to more than 100 hours. Based on discussions with you, your advisor, accountant, or attorney, we can prepare either estimates of time or fixed prices to prepare the report you need.
“It is unwise to pay too much, but it is worse to pay too little. When you pay too much, you may lose a little money — that is all. But when you pay too little, you stand to lose everything because the thing you bought was incapable of doing the thing it was bought to do. If you deal with the lowest bidder, it is well to add something for the risk you run; and if you do that, you will have enough to pay for something better.” (John Ruskin, the leading English art critic of the Victorian era)
We can be hired as consultants to advise on several business valuation and related issues or be an expert witness and prepare a detailed report. Engagements are quoted in advance, and many times a formal, detailed report is not required. So, it really does depend – please call to talk with one of our professionals.
Do you provide real estate appraisals or valuations of other fixed assets?
Many times, the value of real estate or other fixed assets is necessary to complete the project. Although we do not perform appraisals of real estate or other fixed assets, we have strong relationships with many excellent appraisers who specialize in these areas. We work with them on a case-by-case basis to complete the necessary analysis.
What is fair market value?
According to the IRS, Fair Market Value is defined as: “The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent’s gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate.” Regulation §20.2031-1.
Our decades of valuation experience, along with expertise in the fields of finance, economics, tax and accounting, and mergers & acquisitions, allows us to work effectively with your team of professionals or to help you select a team of professionals that meets your needs. Learn more about our valuation and business advisory services.