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The thoughts below explore existing business valuation (BV) practices. The discussion may cover issues that are unfamiliar to BV analysts whose clients have businesses of below $5 million in revenues, or for those who deal primarily with midmarket clients of $50 million in revenues and above. First, it is necessary to acknowledge the many BV thought-leaders who have propelled our current body of knowledge forward. These valuation heroes have assisted countless practitioners and clients. In the absence of the development of best practices, those wishing to make a buck off of the market's ignorance would abound. Also, special thanks to the theoreticians who embrace the ethereal aspects of our industry with application of concepts such as regression analysis.

The Industry

The practice of BV will evolve and be enhanced in time; arguably, not soon enough. Similar to accounting in the United States prior to the 1940's, which reached its pinnacle as a respected profession in the 1950's and early 1960's, BV's nascent path will be shaped by those who comprehend that the fields of economics, accounting, and finance are not the same. Absent that, there will be many who believe that software, rules of thumb, and "cheap" reports are all that is necessary to produce a value for a few hundred or a few thousand dollars.

Having been an executive of an association with 32 million members, I understand that the existence of professional societies is designed for the betterment of the market and those that they serve; however, many associations fall victim to self-interest as they vie for member attention and retention. This means an ongoing tug-of war between generating member revenues from dues, education, testing, collateral materials, and services, offset by the need to elevate the industry as a whole. Instead of enhanci ng and enforcing standards, many associations have simply broadened their offerings. When quality suffers in the pursuit of quantity, the meaningfulness of affiliations becomes diluted. Those who wish to dedicate themselves to our industry have a moral and ethical duty to demand change.

The Practitioners

After two decades and over 1,000 personally prepared valuation reports, I feel that I have sufficient skin in the game to see how, despite our industry's best intentions, it has been affected by insufficient enforcement and end-user education. The net result is the market commoditization of both professional designations and work product, to the skilled practitioner's detriment. The first question asked by many prospects and clients is "How much and how long?" This is the end result of the work of the majority of folks who perform valuation reports without designations, as well as that of many who possess a designation, but do below standard or part-time work. If clients do not know what good work looks like and there are nominal consequences for substandard work, then why not select the cheapest services?

Competence. Only one, out of the four national valuation associations, requires five years of full-time experience for designation eligibility. During these five years, there's much for new professionals to learn. Most complete approximately 150 reports during this period; however, "mastery" is unlikely to be achieved and skills are honed from being challenged repeatedly.

While the AICPA has a conduct standard that addresses "dabbling" under its competency provisions, the fact of the matter is that most of their members who perform valuations do so parttime, and relatively few hold BV designations. If working part-time means performing less than four reports annually, it could take a 3D-year career to mimic the experience gained from a five-year period of full-time learning. This is tantamount to learning on the client's dime and harms the industry.

Compounding the part-time dilemma are the use of computer-generated reports, and production of what can be termed "cookbook valuations." While such valuations are theoretically compliant, the results are faulty at best and egregiously incorrect at worst. There are also concerns relating to the type of data used by part-time valuators. Each year, established firms spend thousands of dollars on data to ensure their research is robust. Dabblers either omit using such data (preferring their "assumptions") or simply acquire limited data, which is insufficient. It is hard to suggest which is worse:

  • A seasoned designated analyst generating substandard work and charging a premium.
  • An unskilled analyst conducting substandard work and doing so at a discount.

Both harm clients and the industry with no consequences, and reinforce the "art" moniker in the 'art and science' perception of the industry.


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Carl Sheeler, PhD, ASA, CBA, AVA, has over 25 years of public and private company experience with business disputes/disruptions and well as transfers, transactions and transitions associated with Intergenerational Planning, Equity Transfers with Estate and Gift Tax issues, as well as Partial and Full Liquidity Event Options.

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