Business Valuation Experts: Determining Expert from Amateur
Accurate valuations are the difference between a profitable sale and barely getting out of the business with a dollar in your pocket. Business owners frequently misvalue their companies and end up selling for far less than they should, and the only way to avoid that is to rely on an expert. Unfortunately, there aren’t clear requirements on what it takes for someone to call themselves a business valuation expert.
You can learn about business valuations and the professionals that perform those valuations to find an expert to work with confidently. It’s not easy to sort out the amateurs that are good at selling everything a valuation should be. From the experts, you can create those useful reports.
What Experience Should a Business Valuation Expert Have?
There is not a clear-cut requirement to claim you’re a business valuation expert. The International Revenue Service, courts, and various other authorities require a “credentialed valuation advisor.” The idea of a credential doesn’t refer to a single test or certificate. Often, it comes down to a professional proving that their experience allows them to dedicate most or all of their skilled efforts into providing business valuation services. Experience is always the focus.
Business valuation experts should have years of experience in appraising, evaluating, and crafting defensible valuation reports. Of course, business valuation professionals need to start somewhere. Many of these professionals will have years of experience and formal education in accounting, finance, or business, such as an MBA degree. Valuation experts will have years of experience handling business sales and acquisitions.
The amount of experience varies, but a business valuation experts should always have:
- Years of experience in mergers and acquisitions
- Experience handling valuations relative to your specific needs.
- Experience in appraising
- Experience in creating defensible valuation reports
- Formal education in accounting, finance, or business.
Experience doesn’t directly produce a better valuation, but an expert should have varied experience. Another important element of experience is that the valuation expert learns from a range of resources – internal knowledge from other business valuation experts and external knowledge from formal education and personal experience through other work environments.
Business brokers, CPAs, and similar professionals can show their prowess or dedication to valuation ethics and principles through associations with formal entities. Formal entities, including for-profit and non-profit organizations, may help indicate the prowess of business valuation experts.
Are There Formal Entities That Oversee Business Valuation Experts?
Yes, there are many formal entities; however, there is no federal requirement to operate as a business valuation professional. As mentioned earlier, the IRS and the legal systems have expectations. Ultimately, there is not a nation-wide practicing requirement such as a credential.
It is beneficial to establish membership, credentialed association, or affiliation with these formal entities. These formal entities serve the public, the industry, the business community, and finally, business valuation experts. Most of these associations, societies, or communities seek to establish a high level of ethical conduct and standard practices.
In short, if you’re seeking out a valuation, it is generally good to see the logos of a few well-established international or national organizations. Some of the entities listed here provide many benefits and resources to brokers and can showcase the professional’s dedication to constantly expanding their knowledge on valuations. However, other associations, including state associations, may serve as more of a news source or professional network.
The American Society of Appraisers (ASA)
The ASA is an international organization and the oldest entity of its kind. They emphasize that members will benefit from a network of collective knowledge as well as industry resources. The idea of keeping a membership with the ASA shows that the professional shares a dedication to high standards for ethics, education, and professionalism.
ASA members aren’t exclusively for business valuation. The ASA represents all types of appraisers. Some business valuation experts place value in an ASA membership while others believe it covers too broad of a scope.
The National Association of Certified Valuators and Analysts (NACVA)
The National Association of Certified Valuators and Analysts® (NACVA®) provides training and certification for individuals to conduct business valuations. This entity seeks to set a high bar for professionals working with business valuations, and through the NACVA, a business professional can become a Certified valuation Analyst (CVA).
Before the NACVA will take on a CVA applicant, they must hold a CPA license or:
- Hold a business degree.
- Two years of experience working in business valuation or a related field
- Pprovided a significant role in at least ten business valuations with credit in the valuation report.
- Ddemonstrates substantial knowledge of valuation methodology, theory, and practice.
- And more.
The NACVA stands out as a highly-credible association or credential for a business valuation professional. It shows that they have not just paid fees but undergone extensive review and consideration before being accepted as a member.
Our team at American Fortune has a deep respect for the NACVA and carries a membership.
International Business Brokers Association (IBBA)
Although accountants, CPAs, and others can perform business valuations, the most qualified and reliable professionals are business brokers. The International Business Brokers Association is a non-profit association that aims to assist business brokers in their professional development and enhance public awareness of what to expect when working with a business broker. Business valuation experts should carry an IBBA membership.
The American Fortune team is a proud IBBA member.
Alliance of Merger & Acquisition Advisors (AMAA)
When we covered the experience that a business valuation expert should have, there was an emphasis on mergers and acquisition knowledge. The Alliance of Merger & Acquisition Advisors provides information, resources, and a network for M&A professionals.
Holding an AMAA membership can serve as proof that the professional has years of experience in working with mergers and acquisitions. Often an AMAA membership and many of the other memberships listed here will substantiate the experience that the business valuator claims.
American Fortune continues to hold an AMAA membership as active M&A professionals.
State Established Trade Associations
Just because a realtor is registered with the local board of realtors or an attorney has passed the state BAR doesn’t mean that they’re an expert, only that they meet the basic expectations. Years of education related to business valuations and business finance can make the business valuator well-qualified to perform accurate, defensible, and reliable valuations.
Florida, Pennsylvania, and California are only a few of the state-based trade associations for business brokers. Business brokers are the best professionals for conducting defensible valuations. If you’re looking for business valuation experts, then it’s likely that you’ll need to turn business brokers.
These state associations typically have a code of conduct and aim to protect the public’s best interest. However, these state associations don’t typically have a lengthy application process. Anyone with the correct licenses can gain access to these associations. It doesn’t mean that a professional who holds a membership has any enhanced experience or skill.
Having a state association membership can showcase that the business broker or business valuation professional is actively practicing in the area. Additionally, these associations are often a resource for business owners who need to find business valuation experts. There is no harm in having a membership with a state-established trade association for business brokers, accountants, or appraisal professionals. However, it doesn’t necessarily prove that they work on an “expert” level.
Do Business Valuation Experts Need a License or Degree?
Not necessarily, essentially someone can act as a business broker or accountant and claim that they can perform a business valuation. An accountant can perform valuations, but a complete business valuation that is defensible and comprehensive often comes from a well-experienced business broker.
Business brokers should have the unique blend of skills, experience, and access to resources to provide a thorough and defensible valuation. Business brokers will have the resume and credentials necessary to enter into the more prestigious or difficult-to-enter societies for valuation experts or business brokers.
There isn’t one single resource for business owners to find business valuation experts. Often a business owner will strike up with the first professional available, and they may not realize that they’re receiving a partial report or a report that isn’t defensible.
For a complete and defensible valuation report that can act as a critical piece in selling a business, estate planning, divorce handling, or tax filing, you need an expert—someone who understands the principles and methodologies and can put them into practice with ease. Business brokers are the one resource for all the experience necessary for a comprehensive valuation reports, and they’re commonly the only ones who could qualify as business valuation experts.
Before agreeing to work with a business valuation professional, ask them about their experience, credentials, licenses, and past reports. You will need someone who has created reports with the same purpose that you need a valuation for and with know-how in accounting, appraising and more.
Contact American Fortune Business Valuation Services to speak with a qualified business valuation expert.