What to Consider when Choosing a Qualified Business Valuation Expert
Valuing your business may seem like a simple task at first glance, but it is a complex process. From preparing documentation to choosing a valuation method, a lot of effort is required. Hiring a qualified business valuation expert will undoubtedly make the entire process simpler and faster. Besides, when you let the professionals do it, you get the most accurate business value.
However, the first thing to keep in mind is that not all business valuation experts have the same qualifications, credentials and experience. So, in order to get the most accurate valuation for your business, you need to choose the right business valuation expert.
Figuring out which one is the best can be tough, but, fortunately, there are some indicators that will help you and guide you to the most qualified business valuation expert.
In the following article, we will provide you with all the information needed to get the best valuation of your business. Let’s dive deep into that.
Who Can Perform Business Valuations?
In general, a business valuation expert can operate either as an independent specialist or as a company. Essentially, they are knowledgeable professionals with substantial experience in providing quality business valuation.
Whether you need to evaluate your business for the purpose of the financial report, taxes, strategic planning, restructuring, merger or acquisition, buy-sell agreements, litigation, divorce, etc. – you will encounter a variety of appraiser choices.
You can consider one or more of the following professionals:
Experienced independent valuation analysts. Appraisers with credibility should be one of your top considerations. Experienced valuation experts have significant industry knowledge and continuing education completions, which they earned based on their knowledge and required experience. The experience and knowledge that professional valuators have are some sort of guarantee that you will get a quality business valuation. The most important is that the appraiser is 100% neutral and objective and that you hire the right appraiser for your needs.
Business advisors. If you need someone to evaluate your business and to advise you with some business wisdom, you may consider business advisors. Qualified business advisors are skilled in helping companies in various aspects of the business – strategy and planning, marketing, finances, business development, etc. Naturally, their skill base depends on the area of their specialty.
Business brokers. They are skilled and experienced individuals or companies who assist buyers and sellers in the purchase and sale of small businesses. They work mainly with enterprises worth less than $5M.
Mergers and acquisitions advisors. M&A advisors are involved with middle-market and larger businesses. They help clients to prepare their businesses to sell for the maximum possible value. In order to do that, first, they need to evaluate the company. Therefore, if the final goal is to sell your business, this is the best option as you get a business valuation plus a complete business exit strategy to help increase the value of your business.
Want to sell a business? IAG’s instant online value estimation calculator can help you get your initial business value fast, free and confidentially here.
Choosing the right business valuation expert depends primarily on the reason you need a valuation. Then, there are a few critical factors that you need to consider when making this decision. We’ll discuss it in more detail in the next section.
Main Factors For Choosing A Business Valuation Expert
The value of the business must be calculated according to professional standards. That requires specialized expertise, significant experience and preferably credentials. Therefore, these are the most important things you need to pay the most attention to when looking for business valuation experts.
They have a variety of responsibilities including: valuation report of the company’s assets, giving the financial opinions and bits of advice (regarding the litigation matters; retirement and exit strategy planning), giving the opinions and advising on estate planning, succession, and taxation, opinion on future earnings projections, submitting business valuation reports for mergers and acquisitions, transfer pricing engagement, recapitalization, business risks, etc.
Now let’s focus more closely on the two main factors for selecting the business valuation expert: credentials and experience.
Business Valuation Credentials
Although the credentials can’t guarantee the valuation performance and quality results, they can indicate the appraiser’s level of professionalism for achieving and maintaining them. Therefore, you should consider where and what they have studied concerning finance and valuation and how well they are educated.
Credentials per se are not necessary for performing business valuations, but hiring an appraiser with some credible certificate will ensure that the process is performed according to professional standards, making the results more reliable and defensible. Becoming a qualified and certified expert is not easy, and it requires additional study after a college degree, as well as some valuation experience.
There are several significant credentials a valuation expert may have, so let’s see what is needed to obtain each of them.
Certified Valuation Analyst (CVA)
This credential is granted by the National Association of Certified Valuators and Analysts (NACVA). To become qualified for a CVA certificate, first of all, candidates need to have Certified Public Accountant (CPA) certification or a business degree. A particular experience in business valuation is also required. It can include a minimum of two years of full-time business valuation work, a significant role in 10 or more performed valuations, and of course – substantial knowledge of valuation practices and methodologies.
Further, they must become members of NACVA or pay a CVA designation fee. Finally, they need to pass the exam and submit a business valuation report in a peer-review process.
If they want to maintain their CVA credential, they must pay either membership fees or CVA renewal fees and also have a minimum of 36 hours of continuing education credits every 3 years.
Accredited in Business Valuation (ABV)
ABV credential is awarded by the American Institute of Certified Public Accountants (AICPA). In order to get this designation, the candidate is required to complete 75 hours of education and 150 hours of business valuation experience. They don’t have to submit a business valuation report for a peer review.
Continuing education is necessary for maintaining ABV designation here as well. The ABV professionals must complete 60 hours of education every three years.
Accredited Senior Appraiser (ASA)
The American Society of Appraisers will award the appraisers with the ASA certification if they have 5 years of full-time business valuation experience, complete over 120 hours of education, pass multiple tests, and submit a valuation report for a peer-review process.
The ASA is wholly focused on business valuation. This certificate is the highest level of accreditation – the gold standard of the business valuation field, and it is one of the most challenging achievements.
The ASA appraisers are obligated to go through the re-accreditation process every five years, which requires continuing education and professional growth.
Chartered Financial Analyst (CFA)
CFA accreditation is another challenging and rigorous program issued by the CFA Institute. Besides the business valuation, it includes portfolio management and other finance areas. It is claimed that this is the next best credential after the ASA for a business valuation expert to achieve.
To get the CFA designation, experts pass 3 levels of exam, each requiring around 300 hours of education. Additionally, they are required to have 4 years of full-time industry experience. A valuation report is not required as this isn’t a credential specific for valuation.
As you can see, the requirements for each accreditation are slightly different, but all of them require education, training, knowledge and experience. Also, every business valuation expert must remain neutral and objective when performing an evaluation.
Experience In Business Valuation
As you could conclude from the previous paragraphs, these credentials must go along with the experience in business valuation. However, keep in mind that not every experience is the same – the experts’ areas of specialty can vary. Some of them are doing business in different fields, while others specialize in certain areas (ASA for the business valuation, e.g.).
Therefore, inspect the appraisers’ experience and expertise thoroughly to ensure that it aligns with your needs. Seek appraisers who have a good track record and are qualified enough to assess your business.
So, before picking a valuation appraiser, always ask about their previous experience, but don’t stick too much only to the number of working years. Your primary focus should be on the results they have achieved with other businesses and the testimonials they can show you.
Another thing to keep in mind is that different needs for business valuations require different valuation experts and different valuation approaches.
At the beginning, we have mentioned some of the business entities that can perform a business valuation. Now that we have determined what factors you need to consider when choosing the right business valuation expert, let’s connect the purpose of business valuation and the potential appraiser and, additionally, the valuation method.
The Purposes & Methods Of Valuation: Examples
If the valuation is performed for the purpose of mergers and acquisitions, then go for the appraiser with a lot of experience and expertise in M&A transactions. M&A valuations rely mainly on the market approach, which means that business value is based on data from the market, the industry and similar transactions. The market approach is the most useful when there are enough similar businesses on the market and enough data for comparison and benchmarking. Of course, the cost and income approaches are not excluded.
Companies that provide M&A advisory services and who have a lot of experience with the businesses from your industry will be a great selection. They help by determining an initial business value and establishing the strategy to increase it as much as possible in order to sell a business for the best price.
Suppose you need a business valuation for tax purposes (from the value of the tangible assets to the entire company valuation). In that case, you need a valuation expert who has a wide range of experience doing business in your industry and is familiar with property tax laws. The valuation approach can vary here, from the income to the cost approach.
The taxing authorities will closely examine this valuation, so it’s crucial to hire a certified business valuation expert that has proven experience in successfully defending tax assessments and valuations.
Further, if you, for example, need a portfolio valuation, the expert (CFA, e.g.) you should choose must have expertise in using the income, and additionally, market approach in business valuation.
In the case of private companies, the financial information is less transparent, so it is challenging for appraisers to find comparable companies in the industry. Therefore, in matters such as sales, divorces, dissolution of the partnership, etc., private business valuation heavily relies on the income approach.
Looking for a qualified business valuation expert may seem tiring, but once you find the right one, you won’t regret it.
Now let’s summarize it up: you need a valuation of your business, and you found out which professional would suit you best – certified appraisers, M&A advisors, or business brokers. The next step is to determine their expertise, credibility, and experience. Of course, don’t forget to consider the costs of their services. When thoroughly examining their background, you probably get a better picture of the exact expert you need.
If you want to sell your business for the best price, the business valuation experts that IAG utilizes are here to guide you through the entire process, starting with initial business valuation and assessment. Not only will we provide you with the information on how much your business is worth, we will work with you on increasing that worth and exiting your business with the maximum value.