Business Valuation Blog | Understanding Buying / Selling a Company

One of the biggest challenges small business owners face is keeping track of all their records for sales, costs, and everything in between. Being organized is critical when it comes time to value your company for a sale, new investor, or any other reason. It will require a lot of information be given to a certified appraiser, who needs to understand the details behind the numbers.

Tax returns, income statements, and balance sheets are the most common types of documents recorded annually, however, these figures may not tell the whole story as the value of your business is determined. Certain expenses will be fixed, while others may be variable and discretionary, which should be discussed with the appraiser so they can make adjustments to the bottom line that otherwise might be missed.

Is it important for you to understand the value of certain tangible and intangible assets as part of the appraisal? The business appraiser will rely on your depreciated tangible asset levels unless you can provide recent equipment or real estate fair market reports, which may show considerably higher figures. Some appraisal firms have the capability of valuing these tangible assets concurrently with the business appraisal as part of the overall project.

The intangible value will normally be picked up within the general goodwill category. If you believe there is significant worth to specific assets such as; customer relationships, contracts, trademarks, patents, websites, or similar intangibles, you will need to provide details that can be supported by revenue streams and related data.

It is important to not only provide the appraiser with as much realistic backup data as you can but to also stay involved and be available to answer questions that may arise during the valuation analysis. These tactics will lead to an optimal outcome while supporting reasonable conclusions for the overall value of your business.

When you need valuation services performed to determine the valuation of a company, have you ever thought about what goes into building a valuation service firm? Are there minimum qualifications, certifications or licenses that are required? What groups oversee business valuation specialists to ensure they're doing their job properly? In this particle, we'll take a look at what it takes to provide valuation services to businesses:

Education

Because business valuation appraisers specialize in appraising businesses, they apply a variety of business valuation approaches to analyze a company's worth. This requires both knowledge and intelligence in determining which type of appraisal to use in which situation and what practices are considered acceptable in the process. For that reason, business appraisers usually have a degree in addition to experience, training and certification. As business appraisal has come out of the accounting industry, many appraisers have experience or a degree in accountancy or business and likely have experience in business transactions. Some business valuation specialists focus on a particular industry or a specific type of business appraisal, allowing them to serve as an expert witness in legal cases to better explain the valuation methodology used in a variety of cases.

Certifications

There are a number of accrediting agencies throughout the United States that offer certification through exam and experience to help ensure qualified business appraisals can be performed by its members. Here are a few of the agencies that are recognized and the certification they provide to their qualified members:

• The National Association of Certified Valuators and Analysts (NACVA) oversees their Certified Valuation Analyst (CVA) program since 1991 and their Accredited Valuation Analyst (AVA) program since 1999.
• One of the most widely known organizations, the American Society of Appraisers (ASA) oversees their Accredited Senior Appraiser (ASA) certification program since 1981.
• The American Institute of Certified Public Accountants (AICPA) has provided the Accredited in Business Valuation (ABV) certification since 1997.
• The Institute of Business Appraisers (IBA) has the oldest certification program in existence. Started in 1978, they administer and maintain the Certified Business Appraiser (CBA) business valuation certificate.

Legal requirements

One of the regular questions we are asked by clients is whether there are legal requirements for becoming a a business appraiser or to run a company valuation service. The Small Business Administration requires certification by one of the previously-listed accreditation agencies, including maintaining an active membership with at least one of the accreditation agencies and re-accrediting their certifications when needed. But beyond requirements, it is vital that a business appraiser receive additional training, have educational opportunities available and can build their experience through their work. Beyond that, some situations, including litigation and divorce, require using a qualified and certified business appraiser who has the knowledge and experience to use the proper methodology for each situation.

Benefits of working with qualified valuation services

When you use a qualified business valuation specialist, you know that your payment is going to provide a quality valuation report that will stand up in legal, financial and insurance circles. That means that whatever your purpose is in obtaining business valuations, you won't need to worry about the validity and that a valuation provided by an independent appraiser will stand up to scrutiny.