Serving Central Texas Since 1967

Different Ways to do BV

Different Ways We Provide Business Valuation Services

We routinely consult with business owners who need help knowing what their business is worth but want to pay as little as possible to find out. Many times considerable explanation is required to explain the different appraisal services we offer. This lays out the options available so we can serve our clients as efficiently as possible.

Professional Standards Direct Business Valuation Services We Can Provide

The professional designations we hold dictate the professional standards we must follow. Because we hold all three of the most sought after business valuation designations, we must adhere to the appraisal standards of four organizations (two for the ASA). The appraisal designation and related organization(s) follow.

ASA– Accredited Senior Appraiser – American Society of Appraisers and the Uniform Standards of   Professional Appraisal Practice (“USPAP”)

ABV –Accredited in Business Valuation – American Institute of CPA’s

CBA –Certified Business Appraiser – Institute of Business Appraisers

Business Valuation Services

Broadly speaking, the above standards cover business appraisal development and reporting. Guided by these standards we offer the following services.

A full appraisal with a full report – typically required for an appraisal to be attached to a gift or estate tax return or for employee stock ownership plans. These are typically quoted by the hour and usually run $10,000 to $15,000 in most situations.

A full appraisal with a summary report - no tax filing is required but a full appraisal is warranted – for example, valuing stock options, establishment of basis for an estate where no return is required or possibly a litigation engagement. This may lower the price of a full appraisal by $2,000-$4,000.

A calculation engagement (appraisal consulting) –  Standard BVS-1 of the American Society of Appraisers defines a calculation as, “The objective of a calculation is to provide an approximate indication of value of a business, business ownership interest, security or intangible asset based on the performance of limited procedures agreed upon by the appraiser and the client.” Examples of situations where a calculation engagement may be appropriate are:

  • Evaluating whether or not sufficient assets exist for retirement
  • Attempting to determine whether or not to sell a business
  • Sale of company shares to an employee
  • Redemption of shares from a departing shareholder
  • Evaluating the possible acquisition of a company
  • Determining value for a buy/sell agreement
  • Distribution of closely-held shares from a retirement plan
  • Determining value to approach a prospective buyer

Many times a calculation engagement is a good place to start and can be upgraded to a full valuation if needed. Professional standards require that our work product provide credible results in light of the client’s intended use. Further, the client must understand the scope of work performed and not performed by us so he or she is not misled.

The minimum level of service in a calculation engagement would typically be limited to a preliminary analysis of historical income statements and balance sheets, a search for market transactions in a merger and acquisition database and calculating values based on transactions of similar businesses found (market approach). Unfortunately, many times we find this market data to be inadequate and cannot use it to make a meaningful value estimate. When this occurs, we recommend an income approach based on the performance of limited procedures. In most situations, an income approach provides a better value estimate so we would recommend it if you only did one approach. In each case we issue a report explaining the nature of our services, what we did and did not do and the key appraisal schedules. A calculation’s limited analysis and reduced reporting requirements lowers its fee. Calculation services are quoted by the hour and typically range from $2,000 to $7,000 depending on the extent of work performed. Factors that increase the fees include: poor quality and/or incomplete financial information; erratic operating results; high growth; complexity of the business and extent of appraisal adjustments and assumptions required.

We are often asked about a calculation’s margin of error as compared to a full appraisal. Appraisal services require considerable financial analysis and dialog with management. The more analysis you perform and questions you ask, the greater chance you may uncover an adjustment to earnings or other issue which impacts value. However, the law of diminishing returns comes into play since the initial analysis in a calculation normally identifies the key issues and earnings adjustments required. In a calculation the analyst may not spend as much time quantifying these adjustments and may rely more on management estimates. All in all, the value determined in a calculation may be off 10% to 20% from a full appraisal.

Estimating the value of a business is challenging and requires special training and experience. Most, if not all of the people we talk to have no idea where to start. We believe the above range of services allows most clients to get some help with this important issue. If you would like to talk more about this, please give us a call.