Necessary Components in Business Valuation

Business valuations (a.k.a. appraisals) come in many shapes and sizes depending on who has done the work and the process they have followed.  Here’s a brief checklist of what to look for in an appraiser’s engagement letter and CV prior to hiring him or her:

1. Is the appraiser competent to perform your business valuation?  Verify that he or she has a current certification from one of the accrediting organizations, such as ASA, NACVA or IBA, as well as experience with the type of valuation you need and the type of business you have.  If not, reconsider your choice.

2. Will his or her appraisal report conform to the appropriate standards, e.g. Uniform Standards of Professional Appraisal Practice (USPAP)?  While this may not be necessary for limited scope valuations done for internal planning purposes, it is for example critical for appraisals that may be subject to IRS review. The business valuator’s engagement letter should clearly specify the standards to which the report will conform, as well as clearly define:

• The valuation date
• The standard and premise of value
• The purpose, use and scope of the appraisal
• The specific business interest to be appraised

3. Will the appraiser interview management and conduct a site visit? In certain circumstances this impacts the credibility of the appraiser’s report or testimony.

4. Will the appraiser consider all three approaches to valuation namely; asset, market and income?

5. Will the appraiser’s analysis and report address the eight factors stated in Revenue Ruling 59-60?

6. If a minority business interest is being valued, how will the appraiser address discounts?