When the time comes to formally determine the value of a business, finding a qualified appraiser is critical to ensure accuracy, credibility and transparency. A business valuation report can have material impacts on both near-term and long-term decisions you make as an owner, so finding the right partner is important.
As a business owner or if you’re considering buying into a privately-held, going concern, you’ll likely need a business appraiser at some point. Getting an appraisal is often a first step towards buying or selling a business – but there are other reasons why a valuation may be necessary. These include divorce, shareholder disputes, passing a business down to your children, death of an owner, a desire to bring on new partners or in support of a planned exit strategy.
Five things to look for as you evaluate valuation firms
- Do they know your market? Your business’ value is contextual to your industry and market. The best valuation professional for your situation should know the intricacies of your vertical – what drives value in your space, what are the competitive dynamics, how are industry and company future earnings forecasted to grow or change. They should also understand local market dynamics. Small businesses in rural America will have different considerations, value levers and much different balance sheets when compared to almost identical firms operating in Los Angeles. Make sure your partner understands and can account for those factors.
- Price to Value – As the adage goes, you get what you pay for. With business appraisals, that’s a key consideration. Before investing in or buying a new business or selling a business you’ve built over the years, make sure it is valued correctly. It is usually beneficial to get multiple proposals and price quotes. Pay attention to differences in services, approach and valuation methods used. Try to uncover what corners may be getting cut to lower your price as it may be something that costs you more than you’re saving.
- Can they defend their findings? – While no business owner or buyer wants to go to court or have their financial statements reviewed in an IRS audit, those are possibilities when buying or selling a business or meeting valuation compliance standards for gift and estate tax reasons. The last thing you want is an appraiser that hasn’t faced that kind of scrutiny or had their work pressure tested. Working with an appraiser that has been through those situations will set your mind at ease, knowing that you’re getting expertise that’s defensible to all parties concerned.
- Does the appraiser check the right boxes? – Just as it’s important to hire a business valuation provider who understands your vertical and market, it’s also critical that they have the right credentials for your specific circumstances. If you don’t need industry-specific credentials, at least find appraisers with some of the more common industry designations. These include ASA (Accredited Senior Appraiser – American Society of Appraisers), ABV (Accredited in Business Valuation – American Institute of Certified Public Accountants) or the CBA (Certified Business Appraiser – National Association of Certified Valuators). Appraisers often have specific areas of focus as designated by the designations they display after their name or on their websites. For example, if you’re in a legal dispute, find an appraiser with the BVAL (Business Valuator Accredited in Litigation), CFF (Certified in Financial Forensics) or CFFA (Certified Forensic Financial Analyst) designation. If your transaction is in Canada where laws and regulations differ, it’s smart to find a firm with CBVs (Canadian Institute of Chartered Business Valuators) on staff. While accreditation and credentials aren’t the only measure of competence, they are a good indicator of appraiser dedication and skill given the effort required to achieve and maintain them.
- Are you the right kind of client? Much like other professional services firms, valuation firms come in many sizes. If your transaction involves a small family-owned business and is straight forward, working with a huge valuation firm with a global presence might not make sense. Similarly, if your transaction is complex, involving global locations, significant real estate holdings or total assets or other complications, hiring a larger firm with appraisers, CPAs and attorneys on staff is likely a better move. As you consider your situation, make sure there is a strong fit between your needs and the appraiser’s offerings.
Obviously, these are only a few of the things to consider when selecting the right appraiser. You also want to find an appraiser who takes time to understand your unique goals and objectives, has experience with multiple business valuation methods (asset based valuation, times revenue method, discounted cash flow, etc.), has solid references, will maintain your confidentiality and has the highest degree of integrity. Those criteria should be non-negotiables when making this kind of decision.
Contact Fair Market Valuations today to learn more about our business valuation services and to schedule an in-person, no obligation meeting with one of our nationwide professional experts.