There are a number of questions that I have encountered and explained to both clients and attorney’s related to how billing rates are determined for business valuation professionals. I will have a broad discussion of this today and in future topics will address other issues that are in the minds of both the client and attorney.
How are billing rates determined?
The billing rates for business valuation professionals are determined by various techniques. Some of these are based on: (1) the cost structure of the business valuation firm, (2) business valuation reports, (3) depositions. I will discuss each of these methods.
Cost Structure of the Business Valuation Firm
A lot of business valuation professionals come from CPA firms. A common approach for determining billing rates is based on prorating overhead costs to an employee, adding the employee’s hourly rate plus the employee’s costs and benefits, if not already prorated and then adding a number for the profit to go to the firm. The result is the individuals billing rate.
Business Valuation Reports
Sometimes a business valuation report will disclose the billing rates for various job classifications. A firm will attempt to match job titles for determining billing rates. A CV may or may not be included for the individuals in each job classification. If a CV is included, it is easier to determine potential comparability for billing rates.
In depositions, it is common to be asked what an individual’s billing rate is. If the business valuation expert’s credentials are similar to yours, you can use it as a guideline for establishing billing rates.
How to Find a Business Valuation Professional
What Designations or Credentials do they have?
The various business valuation credentials have different educational and experience requirements. The most rigorous are more respected within the business valuation community. The most widely respected and difficult certifications to obtain from the most to least difficult to obtain are as follows: (1) Master Certified Business Appraiser, (2) Certified Business Appraiser, (3) Accredited Senior Appraiser, (4) Accredited in Business Valuation (5) and the Certified Valuators and Analysts.
The Accredited Senior Appraiser must prove at least 10,000 hours of business valuation work experience.
What percentage of time do they spend doing business valuations?
What percentage of time does the individual analyst spend per year performing business valuations? A lot of business valuation analysts are CPA’s and the majority of work is either tax or auditing. They may not be getting the work experience to become more knowledgeable and proficient in business valuations.
A number of years ago I received a call from a CVA requesting assistance on twelve valuations. His website was fantastic. He had four years of experience doing business valuations. I called him on the telephone call, he told me that he had four years of experience but only did two business valuations per year.
The attorney should consider inquiring about the number of continuing professional education hours per year that the business valuation expert has. This should be the largest area of concentration of continuing education.