It's Critical to Set the Stage Before Valuing a Business

Before you contact a business valuation professional, ask yourself the following five questions to help streamline the valuation process and avoid unnecessary confusion down the road:

1. Who’s hiring the valuator? The party that hires a valuation expert is typically responsible for putting up a retainer and paying the invoices. Attorneys may ask the client to hire the valuator directly to avoid collection issues. However, attorneys sometimes hire the valuator directly to help preserve attorney-client privilege. When businesses are valued for nonlitigation purposes, the company (or its owners) typically assumes responsibility for hiring and paying the valuator.

2. What’s being valued? Identify exactly what’s being valued. Provide the valuator with basic information, such as:

• The company’s name,
• The type of entity (S corporation, partnership or trust), and
• The size of the ownership block (number of shares/units or percentage).

The valuator will also want to understand the company’s current ownership composition. For example, what’s appropriate when valuing a 10% interest in a business may be different if one individual owns the remainder vs. if several unrelated parties own it.

3. What’s the purpose of the valuation? Valuators are hired for a variety of reasons. Give your expert basic information about the case or matter, as well as any laws or cases that might contain valuation-related information.

Also, let the expert know if you’re contemplating using the valuation for other purposes. Generally, valuations are valid only on a specific date and for a specific purpose. If you let the valuator know your intentions, he or she can tell you whether the valuation is appropriate for multiple uses — or whether adjustments or additional analyses will be required.

4. What’s the appropriate “as of” date and standard of value? Often a valuation’s purpose determines its effective date and standard of value (fair market value, fair value or strategic value). Typically, valuators consider only information that’s “known or knowable” on the valuation date.

5. When do you need the valuation? Find out whether the expert will have the time and staff available to complete your assignment on time.

It’s perfectly OK if you don’t know all the answers right away. Contact us to address any unanswered questions and prepare you for the next steps in your business valuation.

How HoganTaylor Can Help

If you have any questions about this content, or if you would like more information about HoganTaylor’s Forensic, Valuation & Litigation Support practice, please contact Clay Glasgow, CPA, ABV, CFF, CFE , Advisory Partner. 

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.