Buyer Beware: you need more than just the valuation number.

Sep 28, 2023

When a business valuation matters, supporting details matter.

The need for a business valuation is triggered by important situations: selling a business, gifting shares of a business, valuation of assets as part of a divorce settlement, tax matters, and settling disputes. No matter the trigger, the valuation is important. And the supporting details matter.

Beware of an Emerging Trend – ‘Skinnied Down’ Business Valuation Reports

There is an emerging trend to offer ‘skinnied-down’ valuation reports. The end report is typically briefer, often in the form of a PowerPoint presentation and does not meet the standards of a USPAP compliant business Appraisal Report (mine are typically 100-150 pages).

Firms, including national and larger regional firms, that prepare business valuations are looking for ways to be more efficient; to take less time preparing business valuations.

The format of the final deliverable matters because the supporting details matter. A business valuation report must present a clear and replicable explanation of how and why the business valuation number was determined. The written explanation supported by charts and graphs is essential to a business valuation report meeting the highest standards for business valuation reporting defined by the IBA (Institute of Business Appraisers).

If you need a business valuation, ask the valuation professionals you speak with about the format of the final deliverable to help you assess if you are getting a thorough report that will stand up to scrutiny.

Lack of Support = Lack of Credibility

Standards were established by USPAP for the business valuation industry to garner public trust in the work being done.

When a business valuation is needed, the interested parties need to be able to understand the valuation determined and be able to understand and trust how and why the valuation was determined. This is precisely where these skinnied-down PowerPoint valuations are lacking support and therefore lacking credibility.

The risk for you as an interested party is that the lacking valuation report may create unrealistic expectations, making the situation worse and contributing to trust among the interested parties breaking down further. A valuation report needs to stand up to rigorous scrutiny: that may be another interested party in the matter, the IRS, or a judge. A report lacking supporting details will not meet that standard.

Cutting corners rarely if ever works out. With Merrimack Business Appraisers, you can be assured our valuation reports will adhere to the highest reporting standards with the valuation presented in an objective and detailed way to present what the valuation is and how and why it was determined. Just like a residential real estate valuation, reasonable comparisons will be included.

An Unnecessary Re-Do

I recently completed a business valuation for a divorce settlement. Unfortunately for the two parties, they had jointly hired a business valuation professional and what they received as a PowerPoint deliverable was expensive and lacking in supporting detail. Neither understood the valuation report nor had any confidence in its contents. So, they hired me and received what they needed. Learn more here.

Avoid losing time and wasting money on brief and insufficient valuations. Get the details you need to ensure the valuation is understandable. With a detailed and thorough business valuation that answers why and how, the reason for the valuation will be solved and the situation that triggered the need will be resolved. Do not risk adding to the problem. At Merrimack Business Appraisers, our valuations solve the matter at hand and our clients move on with confidence in the valuation.

When Values Matter. Supporting Details Matter.

Contact us.