In general, the Appraisal Foundation has developed standards for all appraisal disciplines through the Uniform Standards of Professional Appraisal Practice (USPAP). Standards 9 and 10 apply specifically to business valuation. Appraisals that will be utilized by lending institutions backed by federal agencies are required to comply with USPAP. ASA requires their members to follow USPAP guidelines regardless of the use of the appraisal.
ASA has developed a Code of Ethics for members to follow when conducting business valuations, and the BV Committee has also developed its own set of standards for its members.
Government agencies or agencies regulated by the governmental include the following:
For more information about USPAP, visit www.appraisalfoundation.org. If you are looking for USPAP classes specific to BV, ASA Offers both the 15- and 7-hour USPAP courses.
Some industries have “Rules of Thumb” about how to value companies in their industry; however, “Rules of Thumb” are usually quite simplistic. They fail to differentiate either operating characteristics or assets from one company to another. On one hand, if such “Rules of Thumb” are widely disseminated and referenced in the profession, they probably should not be ignored. On the other hand, there usually is no credible evidence of how such rules were developed nor how well they actually comport to actual transaction data. Consequently, “Rules of Thumb” rarely, if ever, should be used without other, more reliable valuation methods.
Sources of “Rules of Thumb”:
Desmond, Glenn M. Handbook of Small Business Valuation Formulas and Rules of Thumb, 3rd ed. Camden, ME: Valuation Press, 1993.
West, Thomas L., ed. Business Reference Guide, 9th ed. Concord, MA: Business Brokerage Press, 1999.
Business valuers come from many walks of life with no one specific background being required. Today, many people in the profession have come out of college with advanced degrees in accounting or finance and joined established appraisal firms for training in business valuation. Others have gotten into conducting business valuations through experience in related fields such as business brokerage, accounting and other appraisal disciplines.
For someone recently graduating from college with a business degree or persons with a strong financial background, the quickest way to get into the BV profession and earn a living is to join an existing business valuation firm who can provide the necessary training and support to ensure you gain the valuable education and experience needed to conduct business valuations that will meet the requirements of the clients, governmental agencies, courts of law, the Appraisal Foundation and valuation professional organizations such as ASA.
As in most any profession, education and experience are the core factors that set business valuers apart. No governmental agency requires that business valuers be licensed; however, most business valuers belong to one or more valuation professional organization (such as ASA) that award professional designations based on education, experience and peer review.
The type of firms conducting business appraisals is less important than the credentials of the person(s) conducting the appraisal. Firms that often conduct business appraisals and provide litigation support either as a full-time endeavor or on a part-time basis include:
| Full Time Appraisal Firms | Typically handle a large variety of appraisal assignments involving litigation and taxation issues. |
| Business Brokerage Firms | Typically handle transactions involving actual sales of businesses or business ownership interest, often in a less formal environment than issues regarding litigation or taxation. |
| Accounting Firms | Tend to handle appraisals involving taxation issues and some litigation. |
| Economic Consulting Firms | Tend to conduct assignments involving economic damages, employee compensation disputes, and wrongful death issues. |
The purpose and use of an appraisal plays a large part in determining the scope of the assignment, the type of appraisal to be conducted, the type of report to be completed and the methodologies to be utilized. USPAP Standards and most standards promulgated by professional appraisal organizations require that the “Purpose and Use” of an appraisal be stated in the appraisal report. Business valuations can generally be categorized into three groups:
Appraisers tend to specialize in specific disciplines which fall into several categories (often with many sub-categories within each).
Appraisers should be qualified to conduct an appraisal by virtue of their education, experience and professional designations. Valuation professional organizations typically specialize in providing education and designations for their members who meet minimum requirements. It is a violation of The Uniform Standards of Professional Appraisal Practice (USPAP) to accept an appraisal assignment without having the necessary credentials to conduct the appraisal without so informing the client.
Intellectual property is considered an intangible asset which (for valuation purposes) must have the following characteristics:
Examples of intellectual property include trademarks, trade names, books, recordings, computer software, etc.
Due to the experience and educational requirements necessary to conduct business valuations, Business valuers are among the highest paid within the appraisal profession. A typical appraisal company will employ clerical support staff, financial analysts and professional valuers. Business valuers usually quote their fees either as an hourly rate (which can vary depending upon the level of expertise of those working on the assignment) or as a flat fee assignment. Most quote their fees for litigation support (such as testifying as an expert witness) on an hourly basis.
In general, business valuation fees are similar to other professionals in the legal and accounting fields. Business valuers who work for an appraisal firm often do so either on a salary basis or a sharing arrangement based upon the total fee for the assignment and contribution of the appraiser to the assignment.
ASA is an organization of appraisal professionals and others interested in the appraisal profession. International in structure, ASA is the oldest and only major appraisal organization representing all disciplines of appraisal specialists. The society originated in 1936 and incorporated in 1952.
The society is dedicated to the benefit of the appraisal profession. It is one of eight major appraisal societies that founded The Appraisal Foundation, a national nonprofit organization created to establish uniform criteria for professional appraisers. Since 1989 The Appraisal Foundation has been recognized by the U.S. Congress as the source for the development and promulgation of appraisal standards and qualifications.
Each designated member of ASA has earned a professional designation in one or more specialized areas of appraisal. To receive the a designation, the appraiser must pass intensive written examinations, submit representative appraisal reports for peer review and be screened for his or her ethical behavior.
To qualify for the Accredited Member designation (AM), an individual must have at least two years of full-time equivalent appraisal experience and a college degree or its equivalent. To qualify for the Accredited Senior Appraiser designation (ASA), an individual must have a minimum of 5 years of full-time equivalent appraisal experience and a college degree or its equivalent.
ASA has a mandatory reaccreditation process whereby designated members must regularly submit evidence of professional growth through participation in professional activities and continuing education. This ensures that ASA appraisers keep their knowledge up-to-date.