The infrequency with which most business owners engage business valuators, the potential tax issues associated with a business valuation, the cost of retaining a business valuator, the types of business valuations available, and trying to judge the appropriateness, experience, and work product of a particular business valutor, can make the process of selecting a business valuator imposing to many small business owners. This blog post is intended as a starting point for small business owners who need to hire a business valuator/business valuation firm.
As a first step when retaining a business valuator, you may wish to consider his or her accreditation or credentials. In my experience, one accreditation that business valuators will reference is their accreditation with the American Society of Appraisers (ASA). One accreditation that you may wish to look for in a business valuator is whether or not the valuator is an Accredited Senior Appraiser with the ASA. An Accredited Senior Appraiser will have five or more years of full-time appraisal experience (or its equivalent). You can confirm the business valuator’s membership with the ASA by going to the ASA website and searching for the business valuator under the function entitled “Find an Appraiser.”
When comparing business valuators you may wish to consider the following additional questions/issues:
- How many years of full-time business valuation experience does the business valuator have?
- How many business valuations does the business valuator and/or his or her firm complete annually? What is the typical level of complexity of these business valuations (and how does this complexity compare to the business owner’s situation)? Of these business valuations, how many are calculation engagements vs. valuation engagements? [For more information on the difference between calculation engagements and valuation engagements, check out our post entitled Small Business Appraisals–Calculation vs. Valuation Engagements.]
- Business valuations represent what percent of the business valuator’s practice on an annual basis? Business valuations represent what percentage of the firm’s business on an annual basis?
- What type of business valuation would the business valuator recommend in the business owner’s situation, and why?
- To what degree does the business valuator have experience providing business valuations in the business owner’s industry?
- Are there important factors other than experience, such as service, reputation, communication skills, and education that may put one business valuator ahead of the others?
I would also suggest carefully comparing the pricing and billing approaches of the various business valuators you contact. In my experience, there can be substantial variation in pricing and billing approaches for business valuation services.
Finally, when comparing business valuators, and when contemplating retaining a business valuator, consider carefully the terms of the contract under which you would retain the business valuator. Among other substantial issues that may arise, you may wish to consider the following:
- If the business valuator and his or her team are retained on an hourly basis, what protections are in the contract to avoid an unanticipated run-up of hourly fees?
- Are there additional provisions in the contract that could lead to additional costs? For example, does the contract provide for the possibility that the business valuation firm may retain outside qualified appraisers or other expert services in addition to their own services?
- How does the contract address future services from the business valuation firm that may be provided after the initial business valuation is complete?
There is a lot to consider when retaining a business valuator/business valuation firm. But the right valuator and valuation can be an important first step in selling your small business or small business interest.
[Legal advice not only involves an understanding of the law, but the application of the law to a particular set of circumstances or facts. Typically blog posts are imperfect tools to address the subtlety and exceptions of the law that may apply in particular situations. As a result, the information in this blog post does not represent legal advice. If you are in a situation where you need or desire legal advice, we would be happy to help. Call 608-358-9413 to set-up a no-charge initial consultation.]