Apr 12, 201812:18 PMExit Stage Right
with Martha Sullivan
Two truths and a lie: Business valuation edition
(page 1 of 2)
“Two truths and a lie” is a game where someone tells three things about him or herself and the other players have to guess which one is a lie. It’s a fun game. It brings out a lot of creativity and dispels myths and misperceptions about a person.
Some of my recent posts talked a lot about business value, how it’s perceived, and the factors that influence it. You’ve been encouraged to know where your business stands, both now and ongoing. What you learn in the process is tremendously helpful to you and all the other stakeholders in your business.
There are assumptions about what a business valuation can or can’t do for you. Some are valid but others can lead you astray, kind of like two truths and a lie. So, let’s play!
You’re ready to get a valuation of your company. You know it’s good to have a baseline. You’re thinking about getting out in about next 10 years. You might sell it outright or possibly gift it to the kids. You’re doing some estate planning, although you and your spouse are going through a rough patch. With this scenario in mind, you start looking for the right valuation professional and service to meet your needs.
Which of these statements are true and which is the lie?
- There are different types of advisors qualified to do my work.
- I’ll need multiple valuations prepared depending on how things turn out.
- My business valuation is like Kelley Blue Book. That’s “the number” I’ll get.
Truth: There are different types of advisors qualified to do my work.
There are seven or eight different credentials your advisor could hold. Three of the most common ones include:
- American Institute of Public Accountants’ (AICPA) Accredited in Business Valuation (ABV) designation;
- American Society of Appraisers’ Accredited Senior Analyst (ASA) designation; and
- National Association of Certified Valuators & Analysts’ (NACVA) Certified Valuation Analyst (CVA) credential.
There are differences between these credentials; however, all require their credentialed advisors to follow the same core standards, approaches, and methodologies in the analysis and development of a valuation. These approaches have been heavily influenced by tax law and court cases, which has resulted in, for the purposes of this blog post, no discernable preference between these designations when selecting advisors.
Unlike your CPA, there is not a requirement for a valuation analyst to be licensed in a state, or for that matter even credentialed. Anyone can sell him or herself as being capable to give you a value, even if he or she is not.
However, experience and cred matter. You want to be sure your advisor is credentialed. If your valuation is involved in a tax or legal matter, your advisor’s credibility will be scrutinized. The lack of a credentialed, experienced advisor could result in your case blowing up, including having your number thrown out and the IRS prevailing with a value that’s in its favor.
If your current CPA firm doesn’t have someone who is qualified in business valuations, go find someone that does. (Your accountant won’t be offended.) Most mid-sized and larger accounting firms in Madison, as well as other specialty business valuation firms, have qualified, credentialed professionals who do this work. (Note: The AICPA’s ABV is separate from your accountant’s CPA designation. Being a CPA does not mean a person is qualified to perform and defend a business valuation.)