The value of a business is relevant in a wide variety of legal contexts, including divorces, shareholder disputes, mergers, bankruptcy, and tax planning. Not every so-called “valuation” service is the same, however. It’s important to understand the different services valuators offer so you can make an informed choice.
Comparing Engagements
1. Conclusions of value. Here, valuators consider all approaches and procedures they find appropriate for the circumstances. The valuation will consider applicable valuation practices and standards, as well any relevant legal precedents. The result may be presented as a single amount or a range of values.
2. Calculations of value. This level of service is more “bare bones” than a full-blown valuation. For a calculation of value, the expert generally applies only approaches and procedures the client explicitly agrees to in advance. The result is expressed as a calculated value that may be a single amount or a range of values.
A calculation typically includes a disclaimer stating that the result could have been different if a full valuation had been performed. Beware: When calculations are presented in a litigation setting, this admission may raise a red flag to opposing counsel and discredit the expert’s conclusion in the eyes of the court.
The professional standards of other valuation organizations, such as the National Association of Certified Valuation Analysts (NACVA) and the American Society of Appraisers (ASA), provide similar guidance.
Selecting the Right Service Level
A full-blown valuation generally produces a comprehensive, reliable estimate. But a calculation can be a cost-effective tool under the right circumstances. For example, a valuator might decline a valuation engagement because the requisite information isn’t available. In addition, a calculation could be appropriate for clients who are negotiating the sale of a business or settling a lawsuit. They also may be appropriate for initial estate and tax planning.
On the other hand, a full-blown valuation is often required for IRS issues, such as estate and gift tax filings, as well as other valuation engagements, including valuations prepared for Small Business Administration programs. They’re also generally advisable when litigation is involved, as courts tend to find them more credible than calculations.
Look Before You Leap
When valuing a business, one size doesn’t necessarily fit all clients. Before hiring an expert, discuss the intended uses, access to the company’s financial records, and time and resource constraints to determine what’s appropriate for your situation.
TheKFORDgroup litigation team holds extensive knowledge and experience in expert witness engagements, forensic accounting, and business valuations. Our experts are trained and experienced in the litigation process. We have the extensive experience in various legal contexts and business valuations. We can assist you, your client, and the other side in determining the correct valuation for their legal matter. For more information, please call us at 210-340-8351.
Additional information included in this report was provided by PDI Global / Thomson Reuters © 2023