April 17, 2017 | Valuations
Business valuations are prepared for many purposes Maine, including litigation, estate and gift tax, and the purchase or sale of a business. They can be an essential part of all of these things, and it is important to properly understand and utilize a valuation. At Filler & Associates, we recommend that the reader critically review the report to determine its accuracy and reasonableness.
A Qualified Appraiser
In reviewing a business valuation report, the reader should determine first if the report is prepared by a qualified appraiser. The reader should then be sure it includes detailed planning, identifies the critical factors, and documents and analyzes specific information.
While reviewing the report, it should be evident that the appraiser has an understanding of the company’s unique characteristics, including the history, ownership, management, products, services, customers, suppliers, facilities, and personnel. It should be clear that the valuator has analyzed and understands the risks that may be involved with ownership, the stability or irregularity of the earnings as well as any other relevant factors that affect the company being valued. In the report, the appraiser should also consider external factors that may affect the business as of the valuation date, including demographic trends, relevant governmental regulations, and the national and local economic conditions.
In reviewing the business valuation report, the reader should look for common errors or deficiencies and ask the following questions:
- Does the appraiser have the proper experience and/or education to perform the valuation?
- Is the report mathematically accurate?
- Does the appraiser properly apply case law and statutes?
- Has a site visit been performed? By performing a site visit the appraiser is better able to understand all aspects of the business.
- Has the appraiser properly identified and valued the interest? For instance, is the interest a minority interest or controlling interest?
- Has the appraiser properly analyzed the books and records of the company and made appropriate adjustments? Were material personal expenditures found through a thorough analysis? It is important to understand the accounting methods being utilized by the company and to determine if they were being applied consistently.
- Has the appraiser researched and analyzed market data and its effect on the company’s value?
- Have company documents and agreements been properly analyzed to determine their effect on value?
- Has there been a thorough and thoughtful analysis of the factors involving risk?
- Has the appraiser considered the three generally accepted approaches to valuation—the Income, Market and Asset Approaches? The valuation report should discuss the rationale for the approach(s) that is most appropriate under the circumstances.
- How have growth rates been determined? Are they realistic? Do they require additional working capital or plant capacity? Were they considered in the valuation report?
- Has the appraiser addressed the discounts that were applied and how they were computed? Has the appraiser discussed empirical evidence and the company’s unique characteristics?
Filler & Associates has the experience and knowledge to assist you or your client in Portland, Maine in reading a valuation report. We can help make sure all information is accurate and complete.