As a leading resource for providing objective, independent advice to owners of print and graphic communications companies, NAPL receives all kinds of inquiries for business valuations. Many of them lack clarity on key issues which affect the project scope, written deliverable, and outcome of the engagement.
Here are 5 points that you should nail down when retaining a professional for a business valuation:
Purpose: Be clear on the intended objective. Valuations for mergers and acquisitions negotiations are dramatically different than valuations used for estate planning purposes. Valuations used for corporate divorce (ownership restructuring such as partner buy-out) are not necessarily similar to those used for personal divorce (each state has different matrimonial laws).
Effective Date of the Valuation: As an example, we had a case in which the relevant date was November 1, but the company used a year-end of December 31 for financial reporting. A conversation with the client and their attorney allowed us to reach an understanding in making an assumption that the value was not materially different from Nov 1 to Dec 31; otherwise, the client would have faced huge accounting fees to create an 11 month financial statement if we had just taken the direction to use Nov 1.
Standard of Value: The selection of valuation methods should be up to the professional resource, but an understanding as to the appropriate standard of value, ie: "fair value", or "fair market value", or "synergistic value" is commonly agreed upon by the expert and the client at the time of engagement or shortly afterward.
Determine the Client: Is the report the property of the company, its shareholders, one shareholder, the bank, or the attorney work product if the case is a litigation matter? Who is responsible for fees? To whom does the professional take direction from? To what extent are various shareholders going to be involved in the process? Are they "on the same page"?
Clarify What is Being Valued: is the valuation of the business "as a going entity"? or its underlying assets such as equipment and general intangibles? is the real estate included or a separate item? is the valuation of the company or the particular shareholder's interest? is the discount for marketability applicable? is the discount for minority interest applicable? if so, what percentage reduction is appropriate?
There are a few more really good points for clarification, but I'm going to save those for clients and prospects who call with serious inquiries for engaging NAPL's Business Valuation services.
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