Business Valuation Process - what questions should I ask?

Anonymous: Firstly: good on you - I believe clients are always better-served when they prepare questions for us before beginning their selection process.

Succession Planning represent a "consulting" valuation - vs. a compliance appraisal (tax, financial reporting). [Assuming the need does not represent an estate tax requirement]. The former should result in a range of values, while the latter generally provides the client with a single value "estimate" - and is more consultative. And so you will wish to engage a professional who has provided "recent" consulting-related appraisals (buy/sell, M&A, exit-planning); specifically for succession planning purposes. Also, many fine BV professionals are now working in the business-exit-planning space - some provide additional services beyond initial BV estimates, (enhancing company value for higher exit price). If owner has legal counsel assisting in the transition, ask them for names of such individuals.

Credentialing is often not the most important indication of fit, in my experience. However, each credentialing organization provides its own Standards (below is a listing), which might help in your selection. I find that the discipline is now bifurcated between CPAs/ABV and non-CPAs (ASA, CVA, etc). I believe non-CPA appraisers are generally more comfortable in the consulting role. Please note: ASA's are bound by USPAP (the real-estate appraisers law, of sorts), others are not. I think USPAP is not consultant friendly bc it binds the appraiser to specific processes and deliverables related to "Compliance" BV engagements.

I would consider asking the following - in order of importance:
1. Experience with "consulting appraisals (recently)" - success planning specifically (ask them to cite recent engagements, redact details)?
2. Experience completing such valuation engagements in the "specific industry"?
These 2 should filter out the compliance-only appraisers, so that you can find a consultative-minded BV expert.
3. What methods will be used? and WHY? (cost,income,market).
4. What process will he/she use to understand the business? (cheap appraisers skip this important step).
5. Ask them to explain the "Standard" and "Premise" of Value to be used?
6. They should ask about "Level of Value" early in discussion (Control, Minority, etc)
7. Type of Report to be Issued? What is the deliverable?
8. Length of Engagement?
9. Cost? (Note: if cost is your first question, be prepared to receive a low-quality bid and deliverable). At $15M, I would expect to pay $15-$30 for a quality-level consulting appraisal, if your budget is $5K, expect only cheap, low-quality providers to respond.
10. Production: who - at the BV firm - will be assisting in the valuation? What is the origin/source of the valuation production work - Caution: many BV firms will source your appraisal locally but offshore the work (mostly to India) -- this is a questionable practice. Some firms will hand the file to a jr (inexperienced) staffer. If you seek quality- work with one on-shore experienced "grown-up" appraiser throughout.
11. BV SW: inexperienced, cheap BVer's tend to over-utilize BV software; the results from these black-boxes do NOT represent a legitimate Business Valuation estimate.

Note: Many quality-based appraisers will request to speak with the decision-maker and check-signer - generally the CEO, b/c we will be working with him/her, and a fit needs to exist before we take the engagement. Cheap appraisers have no regard for who they are working with, so disregard if #9 is an issue.

CREDENTIALS:
1. CVA (NACVA): http://www.nacva.com/cva,
2. USPAP (ASA):https://www.appraisers.org/docs/default-source/discipline_bv/bv-standards.pdf?sfvrsn=0
3. CPA/ABV: https://www.aicpa.org/InterestAreas/ForensicAndValuation/Membership/Pages/abv-frequently-asked-questions.aspx

hth

1