Today, the public views the role of the business appraiser differently. We are being scrutinized more by the legal system and public and private entities.
The accumulated histories of all types of financial transactions clearly show that some evaluators of marketable securities and other business assets have lacked knowledge of more sophisticated and informed methodologies to render any supportable opinion of business value. Countless dollars have been lost by buyers and sellers who risked their funds and equities based on old, common-use approaches to valuation used by individuals not trained in today’s industry-specific methods.
Today, this process is recognized and demanded more by the business community and the legal and financial systems in response to the public’s need for validation of worth. The growth of case law, specific governmental oversight of particular valuation processes, and expanded certification programs for appraisers are driving this trend. As appraisers of closely-held businesses, we also recognize the public’s need for a resolution process that works as an offset to the increasing rates of litigation and the needs of dissenting or oppressed shareholders who may need an impartial forum to settle disputes or other concerns. Changes in tax law and the public’s mistrust of business and financial institutions are also drivers of the shift in public thinking about the need for unbiased opinions of value.
Valuators are increasingly being required to prove their worth and competence by compliance with emerging industry ethics and practice standards. These are required by leading appraisal organizations, the Courts, the Internal Revenue Service, the Small Business Administration, the Department of Labor, Homeland Security, the U.S. State Department, accounting practitioners, legal practitioners and the buyers and sellers of business interests.
Our role is not always an easy one. The appraiser works within a framework of differing perceptions by the parties involved. The challenge for us is to create an opinion of value that is supportable and defensible over time and by a variety of critics.
How we defined business appraisal in the old days and the ways we do so today is part of the reason for this change in public recognition of business appraising.
An earlier definition was as follows:
An opinion as to the value, usually in writing, or it is the process of estimating the cost or value, of an asset, asset group, or all of the assets of a business or investment.
One of the more contemporary definitions today is as follows:
A business appraisal is an act or process, along with a set of detailed procedures, used to suggest the economic value of an ownership interest in a business, business security, or an intangible asset. It is a supportable opinion which is usually provided in writing and should conform to specific appraisal standards and industry guidelines.
Today, the contemporary definitions are far more reflective of the public’s deepening understanding of the valuation process and its diverse applications by the markets and the public at large.
My primary business involves an analysis of how a particular company operates, its financial and business records, the state of the specific industry in which it operates, its essential business financial and operating ratios, and its competition. It also involves an inspection of management, the regional and local economic factors, and any number of other issues that impact the business.
Following this extensive research, I will prepare a precisely written report that will present my value conclusion in a clear and detailed way.