Considering Business Valuation?

• Author: Kaplan, Michael G.

Business valuation (BV) has become a very popular client service for CPAs in public practice. A veritable wave of CPAs are hanging a BV shingle on their office doors and creating new BV departments within their firms. Why is this niche attractive to practicing CPAs? First, it is a natural complement to many of the other new client services, such as estate and gift tax planning and litigation support. Second, competition among CPA firms is turning attest and compliance services into commodities. Third, our clients are demanding it. In fact, most CPAs have heard their clients ask, "How much is my business worth?" And last but not least, BV is a very lucrative niche.

CPAs must consider customary strategic planning issues when they develop and manage any new service. However, the methods used in creating a successful BV practice differ greatly from those used to grow and manage traditional CPA firm services, such as audit, accounting and tax. For example, firms providing business valuation services must identify new markets, earn a professional designation, pursue continuing professional education focused on business appraisal, recruit and develop personnel, consider a variety of liability issues and integrate the BV practice into the firm's current way of doing business.

What valuation entails

Valuations are used for a variety of purposes, including mergers and acquisitions, buy and sell agreements, ESOPs, shareholder transactions, business dissolutions, divorce, estate and gift tax planning, eminent domain proceedings and litigation support (see "Why Are Businesses Appraised?" p. 3). Often, the appraiser must be familiar with a relevant statute, case law or other peculiarity of an event related to the valuation. Therefore, a CPA retained to value a merger or acquisition will need to be very familiar with M&A activity, and a CPA retained to value a business for minority shareholder buyouts will need to be familiar with the statutory requirements in each controlling jurisdiction. A CPA retained to value a business for estate or gift tax purposes must be familiar with the IRS revenue rulings governing the various standards for valuation. When valuing a business in a marital dissolution, the appraiser must know what valuation methods might be precluded by controlling case law. Therefore, understanding the nature of each BV assignment is essential. No one can possibly be competent enough to take on every assignment. Know what BV engagements are...