Independent Valuation Services: When & Why To Seek A Third-Party Valuation
Posted by Valentiam Group on December 21, 2020
In the life of most businesses, there will be some occasion where an independent valuation conducted by a business appraisal specialist is necessary. A number of scenarios involving transactions, taxes, ownership changes, and other events require independent third-party valuation services to ensure fairness, accuracy, and the proper oversight of fiduciary duties. In this article, we’ll examine when and how to get a business appraised, and why it’s important to have a neutral third party assess the value of your business assets.
The Most Often Overlooked Reason For An Independent Valuation Is...
While there are a number of scenarios where the need for an independent valuation is obvious, one of the best reasons to engage a third-party valuation service is usually overlooked: to gain a full understanding of the value of the business and its assets.
Any company’s value is represented by the investment of money, effort, and time. Anyone who has fiduciary responsibility for the business—as an owner, director, or manager—has a duty to protect the company and its assets. Whether the company is a partnership, an LLC, or a private or public corporation, those in charge of operating the business have a responsibility to manage it properly to protect the investment.
From this perspective, it’s important to have an independent third-party valuation periodically simply to take an inventory of the value of the business, so you are better equipped to make smart business decisions. Whether the company is a startup trying to get rolling or an established business trying to make good strategic decisions, having a good understanding of company value is key to securing financing or investment and making sound decisions. Third-party valuation services give you a different, outside perspective you might otherwise miss. A business appraiser brings to the table not only expertise around how to conduct a valuation, but can also provide a wealth of information about what is happening in your company’s industry. This information gives you a wider lens for viewing the value of the business and its assets, and may help you make decisions to enhance profitability.
Preparing for a business valuation? Download our free Business Valuation Checklist to learn what information is required to calculate an accurate value.
Other Reasons To Seek An Independent Third Party Valuation
The other reasons for seeking an independent valuation are more obvious; the scenarios themselves signal the need to establish the value of the company. These include:
- Financial reporting and tax purposes
- Sales transactions
- Departure of a partner or member
- Establishing the value of stock
- Seeking financing (equity or debt)
- Marital dissolution
It’s important to keep in mind that each of these scenarios emphasizes different business valuation factors; the purpose for the appraisal may also dictate the most appropriate valuation methods. Thus it’s important to keep the purpose for the appraisal in mind when contracting third-party valuation services.
How To Get A Business Appraised
This may seem like a straightforward proposition. However, because the purpose of the valuation determines the approach, it’s important to seek an independent valuation from a certified professional who has experience in performing appraisals for purposes similar to yours. The American Society of Appraisers is one way to find a certified appraisal with specialty for your needs.
If you are challenging a tax assessment, look for an appraiser who has expertise in valuations for tax purposes. If you are considering the sale of your business, look for an expert in valuing businesses of your type and size. Whatever your purpose, engaging an appraiser with the right experience will ensure an accurate and defensible opinion of value.
Need help determining the value of your business?
Valentiam has helped companies in a variety of industries to attain accurate enterprise and asset valuations. We have extensive experience in the application of all valuation methods for a broad range of businesses and situations. Our valuation and transfer pricing specialists have worked with some of the largest companies in the world.
Contact us to see how we can help your company with its valuation and transfer pricing needs.
Topics: Business valuation
The importance of various business valuation factors varies depending on the purpose of the valuation. Here are the factors to consider in different valuation contexts.