By Joey N. Friedman, CPA, ABV, M.Acc, MIB
A business valuation assigns a dollar value to a business or a business segment. To determine the value, analysts often look at the management of the business, prospective future returns, the current value of assets, the capital structure, and much more.
There are a variety of reasons why a business may need a valuation. Valuations can be necessary when entities are going through litigation. Other times, business owners may be looking for an exit strategy and will want to hire someone to value the business before deciding on a sale price. Often, business owners or managers who review the valuation process of their company’s report will learn where their company’s deficiencies lie and use this understanding to enhance operations. A valuation, updated annually, is often important for estate planning, trusts, wills, and sometimes required by the company’s own operating agreement.
Valuations also play a role in obtaining funding. During negotiations with banks or potential investors, a company may need to submit professional documentation showing the business’s value to enhance credibility. A valuation also helps firms plan for future growth.
Who exactly is best qualified to value your company? Business brokers, appraisers, and CPAs all claim to be experts at company valuation. However, not all of them will use proper valuation techniques, or produce the most accurate valuation.
When selling a company, business owners often think that there is a benefit to using a business broker to establish the value of their business. While it is true that business brokers are great with presentation and that they know how to paint a pretty picture and facilitate negotiations for a sale, they usually aren’t qualified to perform a full qualified business valuation.
Another route companies often take is engaging appraisers. This is a problem because most business appraisers advertise that they can value all types of businesses. However, simply because they have training from a textbook on the methods of valuation doesn’t mean they will understand different and unique types of businesses in varieties of industries. For example, an appraiser who has experience valuing real estate might not understand the full extent of assigning values to machinery or intellectual property at a manufacturing business’s facility.
Accountants are trained to understand financial statements and financial information extremely well. They also usually work with and are familiar with businesses in a variety of industries. However, not ALL accountants are trained and certified in the practice of providing an accurate business valuation.
Choose the RIGHT Certified Public Accountant (CPA) for the job. You’ll want an accountant who is trained and certified in business valuation techniques. You can identify this by looking for the ABV credential after the CPA credential in their title. The Accredited in Business Valuation (ABV) credential is given only to the best and most qualified CPAs who have demonstrated proficiency in business valuations.
Therefore, a valuation performed by a Certified Public Accountant who is Accredited in Business Valuation (CPA, ABV) holds tremendous value. Attaching credibility to a value is essential, whether a merger is in store or you’re just looking to come up with plans for a future expansion. A credible valuation figure can also help resolve legal disputes as a judge and/or jury will trust the word of a trained expert.
Business valuations can cost as little as $4,000 yet can sometimes go up to a cost of $20,000 or beyond. A CPA with an ABV credential will tout extensive, business valuation-specific work. This experience will mean a faster valuation process, while still providing higher quality work, and leading to less billable hours spent on your project.
Joey Friedman, CPA, ABV, MAcc, MIB, is an expert witness for divorce and business litigation cases. He delivers reports, opinions, and testimony about business valuations or damage valuations for his clients and attorneys to present in their cases.
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