Valuation professional

What this seat actually does

A valuation professional builds a supported opinion of value using recognized methods and states the assumptions behind it. The critical thing to understand is that value is not a single number that exists independently of why you are asking. A valuation for estate and gift tax purposes, one for a shareholder buyout, one for financial reporting and one for deciding what to bid are different exercises with different standards, and they can legitimately produce different numbers for the same company on the same day.

For a buyer, a valuation is an input to a decision, not the decision. What a business is worth to you specifically, given what you can do with it that others cannot, is a strategic question your advisors cannot answer for you.

When you need one

When you need a defensible number for a formal purpose: tax, litigation, a partner buyout, an ESOP, financial reporting. For deciding what to pay in a negotiated deal, you need a view of value, which is not the same as a formal appraisal.

How they charge

Fixed fee scaled to the scope and the standard of report required. A formal opinion suitable for filing costs considerably more than an internal calculation, so be clear which you are buying.

What to ask before you hire

• What standard of value and what purpose will this report be prepared for?
• What credentials do you hold, and will the report survive scrutiny from the party who will challenge it?
• Which methods will you weight, and why those?
• What are the two or three assumptions that move the answer most?

How to compare candidates

• Match the credential and report standard to the purpose. Buying more formality than you need is waste; buying less is a report that fails when tested.
• Ask how they handle marketability and control adjustments, and make them explain it plainly.

The mistake owners make

Treating a valuation as a price. Price is what a specific buyer will pay in a specific process at a specific moment, and a competitive process routinely produces a number an appraisal would not support.

What this is not

Not a quality of earnings review, which tests the numbers feeding a valuation. Not a banker’s pitch valuation, which is a marketing estimate.

The Institute accepts no payment from any advisor, takes no fee tied to any transaction, and does not place or refer professionals for compensation. This entry describes a role, not a recommendation of any firm.