Business Valuation Blog | Understanding Buying / Selling a Company

How Does Valuation Consulting with Accounting Firms Work?

Posted by Business Valuation Specialists LLC on Aug 3, 2020 8:00:00 AM

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There are a number of situations when accounting firms will call in a valuation consultant to help determine value. Typically used for finalizing financial statements tax filings or dealing with IRS audits, valuation consulting with accounting firms is a process that is often misunderstood, primarily because it is only used in very specific circumstances. If you're facing this situation, here's a bit more information to help you understand what's going on in the process.

How Does Valuation Consulting with Accounting Firms Work?

Let's start by taking a look at the differences between certified business appraisers and accounting firms. Accounting firms provide ongoing support to companies in terms of bookkeeping and financial records, including required reporting. This gives the business an easy way to quickly determine where the business is at the moment, but doesn't tend to provide deeper details about how the company is running in terms of efficiency and operations. By comparison, a business valuation takes an in-depth look at how the company is doing at a specific moment in time, not only in terms of finances, but also in terms of market demand, operational efficiency, financial issues such as boom years or high expenses, projected future income and a wide range of other variables that you won't find in most accounting documents.

Though many business owners choose to limit their use of business valuations to points when a business is being bought or sold, it does have value in a range of other circumstances. When faced with an IRS audit or if you're turning in tax paperwork that is more likely to be audited, having a valuation consultation on your business helps ensure that everything is ready to go before the process. Similarly, before financial filings are made, having a business appraiser look over the business value with your accounting firm helps ensure that no mistakes are made and that your company is properly valued in the filing process.

In some situations, a company's accounting firm may need to work directly with a business appraiser to ensure that the appraisal data is conforming to the accounting and tax requirements of the business' specific structure and organization. As with any business valuation, there is a period once the valuation report has been completed during which a thorough review allows for amendments to be made to the report, if specific issues arise, but for the most part, working directly with the accounting firm or department helps eliminate many of these issues before they arise, which is why they are more common during consultations due to the complexity of finalizing financial statements or working with tax agencies.

By having a better idea of what happens when valuation consulting with accounting firms needs to happen to sort out a specific tax or financial situation, you'll be better able to deal with any questions that may arise during the process. However, it's important to make sure that your accounting firm is working with a certified business appraiser in these situations. This is because a certified appraiser has gone through specific training to ensure that they're using time-tested methodologies in their calculations. These methodologies have been used in a wide range of circumstances, including financial and tax agency situations, which helps ensure that you'll get a proper accounting of your business value.

Topics: Valuation Consulting with Accounting Firms