How To Pick A Qualified Business Valuation Expert

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Image of two businessmen meeting in lobby area of office discussing business valuation

If you’ve ever hired a professional who wasn’t qualified for the job, then you know the disappointment that comes with receiving a final product that falls short of your expectations.

When you need your business valued, you should hire a qualified valuation expert. It’s the best decision you can make to ensure your expectations are met.

 

A history of valuation

Business valuation wasn’t always a profession. In the early 80s, Dr. Shannon Pratt, Robert Reilly, and Robert Schweihs wrote Valuing a Business. This is one of the most referenced texts in today’s valuation profession and brings many valuation ideas into a single resource.

Before its publishing, valuation experts were less structured in their approach and tended to ‘shoot from the hip.’

In recent years, the court system has become well-educated and sophisticated in its valuation decisions.

Judges require higher quality levels from the valuation experts who appear before them. As Daubert challenges increase, experts are expected to be qualified – or get tossed.

In financial reporting, the SEC has repeatedly found deficiencies in the largest accounting firms related to fair value valuation estimates.

This puts more pressure on accounting firms and the valuation industry to make their valuations more transparent and reliable. In addition, valuation credentials are undergoing more standardization and consolidation.

What does all this mean?

Well, becoming a qualified business valuation expert is thorough and rigorous. In order to be credible, today’s expert must have the credentials.

Let’s take a look at the various business valuation credentials and the criteria needed to obtain each.

 

Accredited Senior Appraiser (ASA)

The American Society of Appraisers awards the ASA accreditation. To earn this designation, experts are required to complete 123 hours of education, take multiple classes and tests, and have five years of full-time business valuation experience. In addition, experts must submit a report through a peer review process.

This is the gold standard of the valuation industry and is entirely focused on business valuation. It’s one of the most challenging accreditations for a valuation professional to achieve.

 

Chartered Financial Analyst (CFA)

The CFA Institute issues the CFA accreditation. It’s also a rigorous program, but it covers a range of topics beyond business valuation like portfolio management and fixed income.

Experts with the CFA designation have to take and pass three exams and must have four years of full-time industry experience. They’re not required to submit a valuation report since this isn’t a valuation-specific credential.

This is the next best credential for a BV expert to hold – after the ASA. Many CFAs work in various finance jobs such as portfolio management, hedge funds, or treasury departments.

 

Certified Valuation Analyst (CVA)

The National Association of Certified Valuators and Analysts (NACVA) grants the CVA credential. Experts must pass one exam, have two years of full-time business valuation experience, and submit a report through the peer review process.

This designation is merged with the Accredited Valuation Analyst (AVA) credential.

 

Accredited in Business Valuation (ABV)

The American Institute of Certified Public Accountants (AICPA) awards the ABV designation. If an expert has this credential, she has completed 75 hours of education and 150 hours of actual business valuation experience. She isn’t required to submit a report through the peer review process.

 

At the end of the day, it’s better that your BV expert has at least one of these credentials. But, it’s best to hire a valuation expert with their ASA.

There’s a lot of disparity between the requirements for each credential, so hiring someone with the gold standard of business valuation accreditations – ASA – is your best bet.

 

Here are a few additional tips we recommend you use when selecting and hiring a valuation expert:

  • Ask the potential expert which designation(s) they hold in business valuation
  • Ask him/her how many years of full-time valuation work he/she has performed. Ask what professionals have reviewed and passed their work. Was it a court? The IRS? Department of Labor?
  • To further protect yourself and your business, write into any buy-sell agreements that you’ll use a credentialed valuation expert to value the company in the case of a stock transaction.

 

When the need for a valuation arises, it’s important you have the resources to hire the right expert. You should go into the valuation knowing that you’re working with an experienced and skilled expert and you’ll receive high quality work when the project is done. Understanding each of the valuation credentials should help you make the right decision.

 

Have questions about business valuation? Let’s talk!