In conversations about valuation services, I am usually asked to define what the service is and when is it necessary to have a valuation. I thought I would share some of my basic thoughts on these services. Depending on the requirements of the purpose, there can be quite a bit of flexibility in the approach.
There are two levels of a valuation service:
This is a limited scope valuation service offered in the event of valuing a transaction based upon specific criteria or valuation methods. Examples of this are where there are operating agreements, industry models, or specific formulas to be used to value something. The calculation engagement occurs when the client and valuator agree to specific valuation approaches and methods, and the extent of selected procedures and results in a calculated value. This approach still must meet the criteria and standards to support the calculated value. This approach is usually more interactive.
Conclusion of Value
A conclusion of value requires the valuator to apply valuation approaches or methods deemed in the valuator’s professional judgment to be appropriate under the circumstances. The report reflects the financial analysis and the valuation conclusions used to arrive at the conclusion of value. The conclusion of value which is generally considered (fair market value) so any willing buyer could properly consider the transaction.
Valuation methodologies generally include using a going concern, market, assets based, income, and liquidation value approaches.
Reasons for Valuations
As for when a valuation is necessary, there really are innumerable situations valuations can be helpful or necessary. Estate and gift circumstances to value an asset transfer as a gift or in an estate. Buying or selling a business. Evaluation how business decision can affect the value of a business based upon certain models. Other reasons include but are not limited to are business interruption, buy sell agreements, financing, succession planning, charitable contributions, business dissolution, personal financial statement presentation, divorce, and mergers.
Each engagement is unique, and our firm does offer this service as well as and other consulting services. So please share your thoughts or questions, or give me a call to visit about your specific needs.
Michael S. Miller
Certified Public Accountant
Certified Valuation Analyst