SELECTING A BUSINESS APPRAISER
Most professionals, such as doctors, attorneys, engineers, dentists, etc. have clearly defined career paths that must be followed to enter their profession. Typically, a specific college program must be completed followed by some examination for licensing or other certification.
Unfortunately, the business valuation profession does not have a clearly defined path. No specific college major exists for business valuation, nor are there any governmental licensing requirements to prove minimum competency. Because of this lack of a specific career path and licensing requirements, many individuals with different backgrounds claim expertise and perform business appraisals often with poor results.
Business appraisers typically come from one of the following groups: certified public accountants (CPAs), business brokers, college professors, and stockbrokers. Without special training and business valuation credentials, none of the individuals from these groups are competent to do business appraisals. Very few individuals actually performing business appraisals have earned a professional designation from a recognized professional organization certifying business appraisers.
For years many assumed CPAs were competent in valuing businesses. In 1997 the American Institute of Certified Public Accountants (AICPA) established a special credential for business valuation called Accredited in Business Valuation (ABV) to demonstrate competence in business appraisal. This seems to indicate that the vast majority of CPAs nationwide have little or no training or expertise in business valuation. Another problem for CPA's is potential conflicts of interest. In 1991, another organization called the National Association of Certified Valuation Analysts (NACVA), exclusively for CPAs, was also formed to give CPAs some training and a credential in business valuation called Certified Valuation Analyst (CVA). However, only approximately "one percent" of the CPA's across the nation currently hold either of these two credentials in business valuation.
Business brokers sell businesses, but most have no training in business valuation. Often business brokers use generic rules of thumb to list and sell businesses. Also, many business brokers lack the financial expertise necessary to properly analyze a company’s financial statements.
College professors typically have expertise in financial theory and may be able to analyze financial statements, but they often try to apply sophisticated financial techniques designed for very large companies to small privately held companies. They also often lack the "real world" experience necessary to properly value most privately held companies.
Stockbrokers and stock analysts usually have the ability to analyze financial statements and understand public markets. However, they typically have no experience dealing with privately held companies.
In order to meet the need of demonstrating competence in business valuation, several professional organizations have evolved that certify business appraisers. Additionally, often a business appraisal is done because of some type of litigation. Historically, it was fairly easy to qualify an individual with a business background as an "expert witness." In 1993, this began to change. Now, trial judges are deemed to be "gatekeepers." Meaning that the trial judge has the ability to exclude experts if they do not meet appropriate standards. It is now more important than ever to ensure that an expert witness has the credentials and experience to survive a challenge. Otherwise, their testimony might be excluded in court, or perhaps, admitted but given little or no weight.
The four organizations in the United States that certify business appraisers are: 1) The Institute of Business Appraisers, Inc.; 2) the American Society of Appraisers; 3) the National Association of Certified Valuation Analysts; and 4) the American Institute of Certified Public Accountants. The table shown below compares and contrasts the requirements to obtain credentials from each of these professional organizations. Before you select a business appraiser, carefully review his or her credentials and experience. Generally, those who have obtained the more difficult credentials, such as the Certified Business Appraiser (CBA) from the Institute of Business Appraisers or the Accredited Senior Appraiser (ASA) in business valuation from the American Society of Appraisers, will do high quality work and be well regarded in court.
Business Valuation Credentials
A method of determining which credential(s) are given the most weight in the industry suggested by Michele Miles, Attorney At Law and author of The Business Appraiser and Litigation Support is to look at who wrote the books considered authoritative in the profession and examine what credentials are held by the writers. The books Ms. Miles recommends as books on the required reading list written by business appraisers with their authors and the author’s business valuation credentials are listed below:
Basic Business Appraisal, by Raymond C. Miles, CBA, ASA published by IBA Press.
Business Valuation Body of Knowledge, by Shannon P. Pratt, CBA, ASA published by John Wiley & Sons.
Guide to Business Valuations, by Jay E. Fishman, ASA, CBA and Shannon P. Pratt, CBA, ASA published by Practitioner’s Publishing Company.
Handbook of Advanced Business Valuation, by Robert F. Reilly, ASA, CBA and Robert P. Schweihs, ASA published by John Wiley & Sons.
Quantifying Marketability Discounts, by Z. Christopher Mercer, ASA published by Peabody Publishing.
Understanding Business Valuation, by Gary Trugman, ABV, CBA, ASA published by the American Institute of Certified Public Accountants.
Valuing Small Businesses and Professional Practices, by Shannon P. Pratt, CBA, ASA, Robert F. Reilly, ASA, CBA, and Robert P. Schweihs, ASA published by John Wiley & Sons.
Valuing a Business: The Analysis and Appraisal of Closely Held Companies, by Shannon P. Pratt, CBA, ASA, Robert F. Reilly, ASA, CBA, and Robert P. Schweihs, ASA published by John Wiley & Sons.
As can be seen by reviewing the author's credentials in the books listed above, the credentials held by the authors are the Certified Business Appraiser and the Accredited Senior Appraiser designations.
In summary, the Certified Business Appraiser (CBA) and the Accredited Senior Appraiser (ASA) in business valuation designations are the two most highly regarded in the business appraisal profession due to the rigorous peer review report requirements.
The appraisal group, National Business Valuation Group, of which Hyde Business Properties and Valuations, Inc. is a member, views the report review requirement as the most important component of professional certification. For this reason, we have decided to admit only those firms with an individual holding either the Certified Business Appraiser (CBA) and/or the Accredited Senior Appraiser/Accredited Member (ASA/AM) designation as part of National Business Valuation Group.
Another professional designation exists specifically geared towards litigation support and expert witness testimony. This designation is called Business Valuator Accredited for Litigation (BVAL). It is awarded by The Institute of Business Appraisers, Inc. after an applicant has taken a seven day class, passed a proctored examination, and submitted proof of two successful expert witness engagements or the equivalent.
Note: Paul R. Hyde holds both the MCBA (Master Certified Business Appraiser) designation awarded by The Institute of Business Appraisers, Inc. and the ASA (Accredited Senior Appraiser, Business Valuation designation from The American Society of Appraisers. He also holds the BVAL (Business Valuator Accredited for Litigation) designation awarded by The Institute of Business Appraisers, Inc.