The type of report needed can be determined with the assistance of a certified valuation expert and/or counsel. There are several different types of valuation reports, each of which are offered at a different price point and require varying amounts of time to complete. The 2 main types of reports that ABVFS offers include: Calculation Reports (calculation of value or calculated value) and Summary Report (conclusion of value).

Per the AICPA, a Calculated Value is as follows

    • An estimate as to the value of a business, business ownership interest, security, or intangible asset, arrived at by applying valuation procedures agreed upon with the client and using professional judgment as to the value or range of values based on those procedures.

Per the AICPA, a Conclusion of Value is as follows

    • An estimate of the value of a business, business ownership interest, security, or intangible asset, arrived at by applying the valuation procedures appropriate for a valuation engagement and using professional judgment as to the value or range of values based on those procedures.

Whenever possible, ABVFS proposes that the client begin with the Calculated Valuation Report due to the reduced cost, but there are times when a Calculated Value does not suffice (for example IRS matters such as estate and gift purposes or complex litigation). Depending on the set of specific facts, a client might be able to begin with a Calculated Valuation, but then the engagement might move toward a different set of facts in which a Conclusion of Value (Summary Report) is necessary. In these instances, whenever possible, ABVFS will credit Client expenditures to date toward that of the larger report.

For further discussion on this topic, please reach out to ABVFS for a free consultation.

Business valuations are required for many reasons such as mergers & acquisitions, divorce, estate planning, bankruptcy and financial auditing. The valuation appraiser looks at a company’s profitability, risk, location, competition, history, applicable macro/micro economics, customers, assets, services offered, among other factors to determine an entity's value.

There is no singular way to determine what a business is worth which is why the retainment of an experienced business valuation expert is imperative when trying to apply a value to an entity.

A business owner may believe that their business is worth a lot more or less than the business valuation determined by the appraiser. Frequently, this is due to the fact that the business owner incorporates subjective, non-financial or emotional factors into the valuation that the potential interested party might not recognize as value.

The National Association of Valuators & Analysts ("NACVA"), requires three valuation approaches to be used in every summary valuation. The approaches that are applied and the rationale behind their usage is something that is discussed between the client and the certified valuation expert prior to beginning the valuation process.

There are several standards of value but, the most commonly used standards of value in divorce, business sales/acquisitions, shareholder dissent/oppression and estate planning are Fair Market Value and Fair Value.

NACVA sets the guidelines for valuing a business based upon the definitions put forth by the IRS http://www.irs.gov/publications/p561/ar02.html.

Fair market value.

Fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts. If you put a restriction on the use of property you donate, the FMV must reflect that restriction.

Whereas, per the International Valuation Glossary – Business Valuations, Fair Value ("FV") is defined as the following:

Fair value.

A Standard of Value for which there are different definitions, depending on the context and purpose. Fair Value is typically defined or imposed by a third party (e.g., by law, regulation, contract, or financial reporting standard-setting bodies). The most commonly used definition for financial reporting purposes is under IFRS and US GAAP, which define Fair Value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

FV is used often in shareholder dispute matters in addition to financial reporting.

Other types of valuation standards include (not an exhaustive list): Synergistic Value (standard typically considered for merger and acquisition purposes), Intrinsic Value (value to the specific owner), Divorce Value (some state jurisdictions use “Divorce Value” value without consideration of discounts such as marketability).

The type of valuation that is needed is something that a valuation expert can help you decide. This consultation is offered free of charge by Anchor Business Valuations, LLC.

The process of valuing businesses is extremely complex and specialized. It is a specific track of learning and skill parallel, but separate, to an accountant. There are a limited few accrediting associations that grant certification in business valuations to individuals who have proven their analytic and technical abilities through intense training and real world experience. The National Association of Certified Valuators and Analysts ("NACVA") is one of the most well respected and known business valuation associations and the American Institute of Certified Public Accountants (“AICPA”) is one, if not the, most well respected and known accounting associations. NACVA's business valuation certification is only earned by professionals that have training, education, and experience in appraising companies. NACVA's CVA designation is the only valuation credential accredited by the National Commission for Certifying Agencies. The Accredited in Business Valuation (ABV ®) credential is granted exclusively by the AICPA to CPAs and qualified valuation professionals who demonstrate considerable expertise in valuation through their knowledge, skill, experience, and adherence to professional standards.

Per the IRS, a Qualified Appraiser is as follows:

Qualified appraiser

A qualified appraiser is an individual with verifiable education and experience in valuing the type of property for which the appraisal is performed.

  • 1. The individual:
    • A. Has earned an appraisal designation from a generally recognized professional appraiser organization, or
    • B. Has met certain minimum education requirements and two or more years of experience. To meet the minimum education requirement you must have successfully completed professional or college-level coursework obtained from:
      • i. A professional or college-level educational organization,
      • ii. A professional trade or appraiser organization that regularly offers educational programs in valuing the type of property, or
      • iii. An employer as part of an employee apprenticeship or education program similar to professional or college-level courses.
  • 2. The individual regularly prepares appraisals for which he or she is paid.
  • 3. The individual is not an excluded individual.

In addition, the appraiser must make a declaration in the appraisal that, because of his or her background, experience, education, and membership in professional associations, he or she is qualified to make appraisals of the type of property being valued. The appraiser must complete the Declaration of Appraiser section on Form 8283, Section B. More than one appraiser may appraise the property, provided that each complies with the requirements, including signing the qualified appraisal and the Declaration of Appraiser section on Form 8283, Section B.

Conclusion

Business valuations are a necessary service that a business owner should request when a valuation of a business is needed. It is imperative that a valuation analyst is engaged as they can determine the value of a business based upon facts and experienced professional assumptions.

Please call Anchor for a free consultation regarding the value of your business.