As a business owner, at sometime or another you may need the services of a valuation professional. Even so, this doesn’t mean that you necessarily know what a business appraiser does. As one of the country’s leading business valuation firms, Arizona-based American Business Appraisers would like to take a moment to explain and reflect upon three important yet often misunderstood aspects of what business valuation professionals do.
Role of the Professional: Valuation analysts may act as either an “appraiser” or “consultant,” but not both in a single engagement. So what are the differences between the two?
Appraisers are hired to develop independent and objective value options. The appraiser must always maintain an unbiased position and advocate only for their underlying opinion of value and not for the causes of their client. Consultants on the other hand are neither independent nor objective and may advocate for the causes of their clients. Their goal is to help clients improve underlying value or to assist attorneys or financial advisors.
The Nature of a Finding. The work of appraisers or consultants is ultimately characterized as either an “opinion” or a “limited calculation.” Opinions are based on a complete analysis of the business’ history and financial condition, current economic and industry factors, future outlook and more. Limited calculations are less comprehensive due to restrictions in scope including reviewing only existing information and assessing limited financial data.
How findings may be used. Whether a valuation professional is working as an appraiser or a consultant, the work is produced for a specific purpose (e.g. to determine fair market value) and use (e.g. for gift taxation issues). Common uses include:
- Mergers and acquisitions
- Litigation and ownership disputes
- Estate, gift, and income tax
- Marital dissolution
- Employee stock ownership plans (ESOPs)
- Allocation of purchase price
- Goodwill impairment
- Buy/Sell agreements
- Family limited partnerships (FLP)
- Reorganization and bankruptcies
- Stock option plans
- Succession planning
Now that you know what a valuation professional does, you’ll be better prepared to seek one out and know what to expect should the time come for you to use one.