The Expansion of Business Valuation Services

Source: Practical Accountant

Observations on the business valuation practice include:

v      Many of the most successful members of the National Association of Certified Valuation Analysts (NACVA) have developed industry specialties. Advantages are knowledge of the industry and easier marketing.

v      Some PCAOB public company rules have been extended by the AICPA to private companies, e.g., business valuation and litigation engagements for audit clients. Valuation work for an attest client can be performed if it does not affect the financial statements. For example, valuation of stock to support its redemption price would affect the financial statements, while valuation for a stock sale between family members would not.

v      NACVA’s 2004 survey results:

o        Reasons for valuations

§         Tax-related                       33%

§         Purchase, sale, etc.            18%

§         Litigation                            44%

§         Banking, insurance, ESOPs    3%

o        Three most common industries for valuations:

§         Professional services

§         Construction

§         Manufacturing

o        Average fees for valuation engagements:

§         Family limited partnerships, succession planning, eminent domain, charitable contributions, franchises,
buy/sell agreements                              $ 4,900-$5,700

§         Estate, purchase or sale, divorce               6,100 - 6,800

§         Bankruptcy, fairness opinions, M&A, ESOP  7,500 - 6,700

§         IPO                                                        21,500

v      Marketing

o        Business valuations are one-time engagements, but if you consider the referral source (often an attorney) to be the client, then it is in reality recurring work.

o        Litigators are difficult to sell or to reciprocate with, but once you do a  successful case for one, you will get more engagements.

o        Separate valuation and litigation support newsletters for attorneys are effective.

o        Attending conferences that the lawyers attend provides an opportunity to remind them what you do. The accountant who gets the assignment is often the one who first comes to mind.

o        Business valuation is beginning to be perceived as a commodity. Therefore, face-to-face communications (breakfast or lunch) with attorneys to create better relationships is important.

o        Some firms advertise in local bar association publications and conduct joint seminars with law firms.

o        Other effective initiatives include:

§         Writing articles for industry publications.

§         Teaching a course for the state CPA society.

§         Speaking at business organizations.

v      New standards—The AICPA has issued an exposure draft that may change how business valuation engagements are conducted. The standards may affect the provision of certain less formal types of valuations, where the valuator does limited analysis or provides a calculation of an estimate without industry research, etc.
www.aicpa.org/download/exposure/ED_SSVS_Business_Valuation.pdf.

v      Future growth of business valuation services may include use:

o        As way to establish benchmarks in business planning.

o        In profit or performance improvement engagements.

o        In developing exit strategies.

From Practical Accountant, June 2005. Click on the following link for the complete article:
http://www.webcpa.com/article.cfm?articleid=13019&;pg=pracacc.