Before retaining a business appraiser, it may be useful to perform a bit of Due Diligence to ensure that you are retaining an expert that can perform the engagement competently, efficiently and meets the expectations of the reporting authority (IRS for example).
One of my favorite quotes from Revenue Ruling 59-60 is the following:
“A sound valuation will be based upon all the relevant facts, but the elements of common sense, judgment and reasonableness must enter into the process of weighing those facts and determining their aggregate significance” (emphasis added).
- What is the appraiser’s educational background? What degrees does the appraiser hold?
- What professional designations does the appraiser hold? Identify year obtained and how the designation was obtained (testing, an educational course or _)?
- What professional organizations does the appraiser belong to? For how long?
- Do you specialize in business valuation? If so, any area (litigation versus estate & gift, etc.)?
- How many valuation reports have you prepared?
- Identify the reporting standards that the appraiser follows (AICPA, ASA, USPAP for example).
- What percentage of your time do you spend performing business valuations?
- How do you maintain your professional designations? How many hours of continuing education do you receive each year in business valuation? What courses do you take and what courses are mandatory? For certain professional designations for example a course in USPAP or in ethics is necessary to maintain the designation.
- Have you taught a course on business valuation?
- Have you done any presentations on valuation related subjects? If so when and to whom?
- Have you written an articles on valuation related subjects? If so, please describe.
- Have you ever held a position as officer or board member for a professional organization involved in business valuation? Please describe.
- Describe your valuation process from pre-engagement procedures, engagement conditions and quoting, work program, valuation indication(s) and report preparation.
- Are you independent with respect to this potential client?
- What experience do you have in this industry?
- How much time will you personally allocate to this potential engagement?
- Can you provide us with a sample or redacted copy of a business valuation report?
- How will you determine your fee on this potential engagement? Will it be hourly based or a fee quote to complete?
- How long will it take to complete this engagement? Describe the process to complete.
- Please provide a list of references
- What valuation approaches and/or methods will you consider in this engagement? Why?
- What software will you in the conduct of this engagement? Is it an off-the-shelf package, developed internally or hybrid?
- What discounts will you consider in this engagement? How will you determine them?
- What is the standard of value (definition of value) that you will use to perform this valuation?
- What type of report will you issue: full, detailed report, summary report, calculation of value, oral report or?
- Will you conduct a site visit?
- Do you use rule of thumb to value a business? Will you use them in this valuation? If so, why?
- What factors will you consider in this valuation of this company? How will it impact the choice of valuation method and risk assessment?
About UHY Advisors LLC Business Valuation Group
Our clients range from publicly traded companies to privately held companies in many different industries. In a typical year we complete over 500 valuation engagements many of which include complex capital structures, purchase price allocations and challenging valuation issues.
Valuation Opinions and Advisory
- Equity and debt instruments issued by closely held companies
- General partner and limited partnership interests
- Stock options, phantom security plans and restricted securities
- Personal goodwill
- Customer lists and other customer-based intangibles
- Blockage or absorption discount analysis