Business Valuation Services – What Services Are Offered?

There are many different reasons that someone may require services from a valuation professional. We receive calls and emails asking if we can do an “evaluation,” a “valuation,” an “appraisal,” and a “back of the envelope valuation.” It can be very confusing to business owners and other clients who are not familiar with the different types of services that are offered. Understandably, when business valuations, calculations of value, and other consulting services are discussed, clients can find the terminology confusing.

Since our team includes professionals with different designations, including Accredited Senior Appraiser (ASA), Certified Valuation Analyst (CVA), and Certified Public Accountant (CPA), we must ensure that we follow applicable professional standards for the services that are offered. A comparison of the three credentialing organization’s standards is beyond the scope of this commentary – no need to bore anyone to death! These standards use different terminology for similar services which doesn’t help the situation. Instead, below is a breakdown of the services valuation professionals can provide, which will hopefully remove future confusion.

Business Valuation or Appraisal

Let’s start with the highest level of service, a Business Valuation or Appraisal engagement. These terms are essentially interchangeable and are used by different credentialing organizations. These services result in an “opinion of value” or “conclusion of value.” Under both services the valuation professional is free to apply the valuation approaches and methods they deem appropriate and relevant given the facts and circumstances of the engagement.

This service is recommended for Internal Revenue Service (IRS) and Department of Labor (DOL) related engagements, and other engagements which could be reviewed by a third party or challenged by opposing counsel, auditors, tax authorities of other oversight agencies. Part of the reasoning is that a valuation professional could testify on and defend an “opinion or conclusion of value.” They could not do this for a “Calculation” or “Limited Appraisal,” which is discussed in more detail below. The IRS also requires a “Qualified Appraisal” in certain situations, and this level of service would meet those requirements. This level of service can result in either a detailed report or a summary report. The same procedures would be considered/performed for each report, but a summary report is structured to provide an abridged version of the information that would be provided in a detailed report and, therefore, need not contain the same level of detail as a detailed report.

Calculation of Value or Limited Appraisal

The next level of business valuation service provided is a Calculation of Value or Limited Appraisal engagement. Under this service, the valuation professional and client agree on the valuation approaches and methods to be used, as well as the extent of the procedures performed. Under a calculation engagement, the valuation professional is not free to apply the approaches and methodology they deem appropriate, but rather what is agreed to and spelled out in the engagement letter. The engagement results in a calculated value.

A Calculation engagement generally does not include all of the procedures required for a Valuation engagement. The calculated value is presented either through a written or oral report with supporting exhibits. These reports are more concise than a valuation report while still explaining the key assumptions that drive the calculated value of the company. This service is good for companies which may be looking for an initial indication of the value of the business for preliminary estate planning, insurance policy funding, or other purposes. It also can assist clients who are looking to purchase or sell a small company which do not require a full valuation to arrive at an approximation of value.

Consulting Services

The final level of services offered is consulting services; these are services that professionals are requested to perform that fall outside of the scope of a valuation or calculation engagement. These services are not required to follow a specific format; however, each credentialed team member must follow the competency and ethics rules that are set forth in their credential’s applicable standards. One example of consulting services valuation professionals can perform is scenario analyses on potential transactions. The goal of this service is not to arrive at a level of value for an entity, but to test profitability, growth assumptions, debt service requirements, internal rates of return, and to determine if a transaction will produce positive cash flow.

Another service that’s performed involves modeling for capital spending plans. This service assists companies in considering how to fund expansion projects and allows them to see how various levels of growth and profitability realized through the expansion would affect the project’s return on investment. Clients can also be assisted in developing spreadsheets to model future cash flows given changes in baseline assumptions and to assist with budgeting in future years given changing assumptions. Lastly, valuation professionals can also assist clients with litigation support services that vary based upon the facts and circumstances of the engagement.

At McKonly & Asbury, we offer a wide range of valuation related and additional consulting services to serve individuals and businesses of all sizes. You can visit our Business Valuation Services page for more information, or if you would like to discuss the services we can provide in greater detail, please don’t hesitate to contact T. Eric Blocher CPA, ASA, CVA.

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