Three Aspects of a Business Valuation Professional
This is a good time to reflect on three important and misunderstood aspects of the role of the valuation professional:
- The valuation professional.
- The nature of the finding.
- How are the findings used.
Role of the Professional:
Valuation professionals may act as either an “appraiser” or “consultant” – but not both in a single engagement.
“Appraisers” develop independent and objective value opinions. Ethically, they may advocate only for their underlying opinion of value, and not for the cause of their clients. Many times, appraisers work for and are paid by a particular client. However, the appraiser must maintain an unbiased position.
“Consultants” are neither independent nor objective and may advocate for the cause of their clients. Consultants help clients, whether to improve their underlying value, or to assist attorneys or financial advisors.
Nature of Finding:
Whether we act as appraisers or consultants, we must characterize our work as either “opinions” or “limited calculations”. Opinions are conclusions based on performing a complete analysis. This analysis includes, but is not limited to: history of the business, current economic and industry factors, the financial condition of the business and future outlook. The analysis performed for Limited calculations are performed in a less detailed fashion, due to scope or work restrictions. These restrictions may include: reviewing existing information, assessing limited available financial data, etc.
Permitted Use of Valuation Findings:
Regardless of the valuation professional’s role, the work is produced for a specific purpose (e.g., to determine fair market value) and use (e.g., for gift taxation issues). Because a business may legitimately have different values depending on what the specific assignment calls for, a given valuation report cannot be used for other purposes. There are five main standards of value (each produces a different intended value):
- Fair Market Value
- Investment Value
- Intrinsic Value
- Fair Value (state rights)
- Fair Value (financial reporting)
If the appraiser’s assignment is to provide an opinion of value for gift tax purposes, the standard of value would be fair market value. However, the valuation report should not be used for selling purposes when a competitor is the intended purchaser.
How can American Business Appraisers Help?
Valuation professionals serve as an independent, unbiased expert. Consultants on the other hand, are neither independent nor objective, but rather advocates for their clients. Valuation reports developed for one purpose cannot and should not be used for another purpose (i.e., gift tax verses shareholder disputes).
Every individual situation is different and not everyone requires our appraisal services and sometimes just talking with one of our appraisers is all that may be necessary. With our initial consultation, there is no cost or obligation to you. We promise you two things; first, to invest a reasonable amount of time to gain an understanding of your specific requirements, and second, our communication will be kept confidential.