There are a number of questions that I have encountered and explained to both clients and attorneys related to the length of time required to do a business valuation.  Some of the answers are simple and straight forward while others are more complex.  I will have a broad discussion of some of these today and will address these and other issues that are time consuming in nature.

Revenue Ruling 59-60

I am the Chairman of an International Business Valuation organization and we teach individuals all over the world how to value closely held companies.  Revenue Ruling 59-60 is the foundation of business valuations all over the world.  Revenue Ruling 59-60 states” “all available financial data, as well as all relevant factors affecting the fair market value, should be considered”  This is a high bar for the standard of quality for business valuation professions.  Revenue Ruling 59-60 sets out factors to consider when performing a business valuation.  These factors are:

  • The nature of the business and the history of the enterprise from its inception.
  • The economic outlook in general and the condition and outlook of the specific industry in particular.
  • The book value of the stock and the financial condition of the business.
  • The earning capacity of the company.
  • The dividend-paying capacity.
  • Whether or not the enterprise has goodwill or other intangible value.
  • Sales of the stock and the size of the block of stock to be valued.
  • The market price of stocks of corporations engaged in the same or a similar line of business having their stocks actively traded in a free and open market, either on an exchange or over the counter.

All of these factors have to be considered.

Professional Standards

Business valuation professionals should get training and experience in performing business valuations.  The American Society of Appraisers, American Institute of Certified Public Accountants and the National Association of Consultants Valuators and Analysts all have similar standards that indicate what should be performed when preparing a business valuation.

Internal Revenue Service (“IRS”) Notice 2006-96 determines the qualifications of a business valuation professional in order to accept a business valuation report.  There are severe consequences if a business valuation falls short of what the IRS will accept.

Generally Accepted Valuation Practices (Procedures)

There are text books after text books that discuss how various business valuation techniques should be used in the business valuation process.  These various techniques should be followed.  Many of these techniques are very complex.  If the business valuation expert does not follow the recognized procedures, his or her entire report could be dismissed and not be able to be used.

Summary

Preparing a business valuation report is very complex and time consuming.  The items mentioned above are the tip of the iceberg.  I will be discussing this topic in more detail in future presentations.

Comment

I provide a more thorough analysis in a report so it will withstand scrutiny.

I provide calculations imbedded in the report for most analysis instead of just stating a result.

I have earned the most difficult business valuation designations for valuations of closely held companies.

I have earned a Master’s Degree in Business Valuations and apply those skills to my everyday business valuations.

Richard Claywell has been valuing closely held companies since 1985.  He has earned two of the highest designations in the business valuation field , the Certified Business Appraiser (“CBA”) and Accredited Senior Appraiser (“ASA”),  Richard is a Certified Public Accountant, has a Master’s in Business Valuation (MBV)  and holds the ASA, CBA, ABV, ICVS, CVA, MAFF, CFD, CVGA, ICVS-A credentials.

I welcome and encourage comments and feedback. If you are benefiting from this series, please recommend to your friends and colleagues and suggest that they sign up to receive posts regularly.

I welcome and encourage comments and feedback. If you are benefiting from this series, please recommend to your friends and colleagues and suggest that they sign up to receive posts regularly.