Part 6 – Transaction Teams in Business Acquisition and Sales – Valuation Firm

For both business sellers and buyers it is imperative that they understand how the company is valued and the specific methodology used to derive this value. When a business is formally listed for sale it is typically accompanied with a ‘Business Valuation’ report or an ‘Opinion of Value’ report prepared by either a business broker or a professional services firm accredited in company valuations. The business valuation field is a specialized industry involving a variety of available designations requiring a different set of testing, credentials, and related experience. Some of the more common business valuation credentials include:

  • CVA – Certified Valuation Analyst Sponsored by the National Assoc. of Certified Valuation Analysts.
  • ABV – Accredited in Business ValuationSponsored by the American Institute of Certified Public Accountants
  • ASA – Accredited Senior Appraiser Sponsored by the American Society of Appraisers
  • CBA – Certified Business Appraiser Sponsored by the Institute of Business Appraisers
  • CFA – Chartered Financial Analyst Sponsored by the Association for Investment Management & Research

In addition to these primary valuation accreditations, there are several related credentials held by business professionals providing opinion of value services, which include:

  • Certified Public Accountant (CPA) Sponsored by the American Institute of Certified Public Accountants
  • Certified Business Intermediary (CBI) Sponsored by the International Business Brokers Association

Aside from a business acquisition or sale, business valuations are required for a number of other situations. Several examples would involve: developing a succession or exit plan, a business recapitalization, company buy-sell agreements, securing additional financing or working capital, estate probate or estate planning purposes, a dissolution of a partnership or marriage, and the creation of an ESOP (employee stock ownership plan).

USPAP is an acronym for the Uniform Standards of Professional Appraisal Practice which is generally recognized as the “umbrella” set of standards for company valuations and the analysis of commercial property appraisals. USPAP is propagated by the Appraisal Foundation’s “Appraisal Standards Board” aka the ASB. Because these valuation standards were originally created by appraisers in real estate, not all USPAP standards have been fully accepted by the professional business valuation industry. As a result, USPAP is not a requirement for all of the accreditations listed above and each sponsoring organization incorporates its own valuation standards.

The purpose behind why a valuation report is being prepared is very important (especially if it is driven by IRS or Court purposes) to verify that the appropriate resource is engaged and the optimal report is received. Identifying the specific valuation “date” is also essential. Most valuation firms prepare a number of reports often referred to as Calculation Reports, Summary Valuation Reports, and Detailed Valuation Reports. The circumstances behind the need will determine the report type that is appropriate. For company sale transactions that involve third party funding, the loan process will often necessitate that the lender, on an independent basis, obtain an accredited business valuation as a condition of financing in addition to a commercial real estate appraisal when the acquisition includes real property.