These are actual questions that have been submitted in 2017.
Q: Why is it important to use an independent professional for a business valuation?
A: With so many factors affecting the value of a company, sometimes different brokers or accountants will produce highly varied figures during their business valuation. For this reason it is useful to engage a professional independent business valuator, to eliminate any anomalies and provide you with a more in-depth insight into the potential value of your company. Knowledge really is power when it comes to selling a business, and with an accurate sense of the value of your business, you ensure that you won't waste your time with unrealistically high expectations, or spend years regretting your decision to sell too low.
Q: When valuating my business, why can't I just use the EBITDA multiple?
A: The EBITDA multiple is a simple way to discuss value. But don't be fooled by the mechanical simplicity. When you are using multiples to value a company you are implicitly saying quite a lot about your assumptions for the company's ROIC, reinvestment rate, discount rate, and future cash flow growth. The mechanical simplicity just makes it very easy to forget all of those implicitly assumptions. In the worst case, just using an EBITDA multiple could cause owners to sell their businesses for less than they are actually are worth - or for heirs to pay more than their fair share of estate taxes after the owner's death. For these reasons, the cost of a business valuation can be an excellent investment.
Q: Are business credentials and experience necessary for a business valuation?
A: Not all business valuations are created equal. A credible valuation requires an experienced and knowledgeable professional to give an independent, well-reasoned and well-supported opinion. The courts, Internal Revenue Service, and other authorities demand an experienced, credentialed valuation professional. Unlike many other professionals, people holding themselves out as business valuation "experts" may or may not have even a minimal level of competency. No college major exists in this discipline, nor are there any state or federal licensing requirements. However, several organizations offer professional certifications for business valuation advisors. For example, the American Institute of Certified Public Accountants (AICPA), grants the Accredited in Business Valuation (ABV) designation only to CPAs who have passed an exam and demonstrated experience in the field (defined as involvement in six business valuation engagements or 150 hours that demonstrate substantial experience and competence).
Q: I am in attorney, how do I select a Business Valuation Specialist?
A: Attorneys are often called on to select an expert to value a client's business interest or to perform expert witness and litigation support services. It has been estimated that expert witnesses are used in approximately 80% of civil cases. There are three main steps in selecting a business valuation expert:
- Evaluate the credentials;
- Experience of the expert; and
- Does the valuator understand more than the numbers, but the whole "picture".