Hi all, Question aobut doing valuations work… If I were to offer to valuations for say a private business for someone, do I need to be registered in some way, or provide any sort of certifications to undertake such work. This is extra carricular work on my part by the way, so not for my day job.
Valuation is a 1 to 1 relationship to cup size. Back to reality, I don’t know the answer to this question. I would hazard a guess that you do have to be registered in some way, however, if your work is strictly between you and the company, where is the harm?
transferpricingCFA Wrote: ------------------------------------------------------- > Hi all, > > Question aobut doing valuations work… > > If I were to offer to valuations for say a private > business for someone, do I need to be registered > in some way, or provide any sort of certifications > to undertake such work. > > This is extra carricular work on my part by the > way, so not for my day job. I’m 90% sure you do not. How do you define, “registered”? You could create a LLC if you plan to do this often. Otherwise this will simply fall under a sole proprietorship. You could get an appraiser certificate or the like, however it would not be necessary. A boutique valuation firm I’m close with says their main competition are sole proprietors doing valuations on their kitchen table.
Like most finance questions…it depends. What will your valuations be used for? Tax, M&A transactions, buy sell agreements, business planning purposes, litigation?
depends on what the purpose of the valuation is. If you’re doing it for tax reasons, certifications matter. particularly if you have to go to tax court. In fact, for any situation that could end up in a lawsuit, the courts will consider whether you have any relevant certifications. If your client just wants it for its own internal purposes, and doesn’t plan on sharing your work with anybody (say, the IRS, a bank that might be deciding whether to make a loan to your client, etc.), than lack of certifications probably doesn’t matter.
No registration required in the US.
OP, The valuation industry is not regulated by the SEC, FINRA, or some other governing body. There are no regulatory requirements and/or credentials required to perform valuations. That being said no one is going to hire you without some type of professional designation behind your name. There are several organizations that offer valuation training/designations: ASABV, IBA, AICPA, and NACVA. Having a CPA will give you a tremendous boost in the right direction. Several of the orgs I listed have special “quickie” designations for existing CPAs. There are 3 types of valuations: the kitchen table on a napkin valuation, valuation study, and a formal valuation/appraisal. A valuation study is a more of what a typical ibank puts together. It will include a comps study, market study, DCF val, and asset val. These valuations are not designed to be used for tax reporting purposes and will not hold up in a court of law. They are designed to be an estimate of FMV for a business owner who is looking to approximate the value of his business. A formal valuation/appraisal dives much deeper into the numbers, is prepared by a qualified expert, and can be used in a court of law and for tax planning/reporting purposes.
^Agree with nh1977 and Chuckrox8’s excellent post. I personally would NOT do it, given the circumstances, because of the liability issue involved. Even if your client is doing it for informal purposes, later it can bite him in the rear. Case in point - if he ever uses the valuation to get approved for bank loans or for any external purposes (i.e. garnering clientele & potential investors) and there is something wrong in your report, it will cost him and potentially you too. However, if you have a CFA, that’s enough to be doing business valuations. Even some of the designations listed by Churckrox8 are shoddy and not considered to be legit by most valuators. The golden standards are: CFA, ASA, CPA/ABV. Anything else is considered to be subpar (I came across business plans and agreements that demanded that the valuation be done by one of those three designations.) It also depends on the business. Is it a real estate business, because if it is, you would have to get independent real estate appraisals done for the properties versus an S-corp, etc - this is standard practice in the industry BTW. It’s kind of like taxes - to my horror, I found out that minimum 50% of tax preparers were not CPA’s, yet they have their own business. Keep in mind that lawsuits are a commonality to places like H&R Block, etc. etc.
I actually do a lot of valuations in my day to day work. I work in transfer pricing, so its done for tax planning purposes. So have experience valuing various kinds of IP and businesses and use all kinds of methods. Having said that, as I mentioned this valuation work is unrelated for a little side business I am running. Its basically involves doing valuations on businesses, all be it very very small ones. So it sounds like its ok, as long as I make it clear that the valuations shouldnt be used or relied upon for tax purposes or financial reporting. I really hope so anyway…
transferpricingCFA Wrote: ------------------------------------------------------- > I actually do a lot of valuations in my day to day > work. I work in transfer pricing, so its done for > tax planning purposes. So have experience valuing > various kinds of IP and businesses and use all > kinds of methods. > > Having said that, as I mentioned this valuation > work is unrelated for a little side business I am > running. Its basically involves doing valuations > on businesses, all be it very very small ones. > > So it sounds like its ok, as long as I make it > clear that the valuations shouldnt be used or > relied upon for tax purposes or financial > reporting. I really hope so anyway… Yes. You need to have an enormous disclaimer somewhere within the report to CYA.
Agreed, definately make a disclaimer. It should read something like “my understanding is that the valuation will be used for internal planning purposes (or whatever the reason is). It is invalid if used for any other purpose.”
Huh…Big4s do disclaimers ad nauseaum for advisory services, and they’re Big4s. You wouldn’t believe the amount of energy spent at Big4s to avoid any responsibility. If Big4s can do it, I’m pretty sure a freelancer can !
big 4’s risk management practices are very stringent when it comes to advisory projects, last thing they want is the firm to go down or at least incur massive litigation losses from some oddball $50k valuation project when they have their mutlimillion dollar audits. so yeah if you can get a sample valuation engagement letter from a Big 4 firm, read through the disclaimer and modify as appropriate in your letter. a big4 disclaimer would probably be most restrictive so for your purposes you can carefully relax some of the limiting conditions. as others have mentioned, the key is to be very clear about the purpose of the project and who the target users of your valuation opinion are.
Thanks for the advice guys. I have been contacted by a potential client to do a valuation for a possible business loan he is after. It is with regards to an online business. Do you think there are a lot of potential pitfalls for me with regards to this?? Im thinking of doing for him a comparables type valuation, that way tog et a sense of what similar businesses are going for in the marketplace
bump bump… I know bumping is annoying. Im just an annoying guy…
Just tell him 5 to 7 times EBITDA and call it a day. transferpricingCFA Wrote: ------------------------------------------------------- > Thanks for the advice guys. > > I have been contacted by a potential client to do > a valuation for a possible business loan he is > after. > > It is with regards to an online business. Do you > think there are a lot of potential pitfalls for me > with regards to this?? > > Im thinking of doing for him a comparables type > valuation, that way tog et a sense of what similar > businesses are going for in the marketplace
of course there are pitfalls, it sounds like he would like to present the valuation to potential investors as an independent opinion on the fair value of the business in order to convince them to extend a loan. fairness and solvency opinions always carry a lot of litigation risk. No Big 4 would touch tem for instance You could still do it if you structure the agreement so that you are helping him with the strategic evaluation of the business for his own planning purposes. In other words, he *does* the valuation, you are *helping/advising* him. In reality, you do the entire work but refuse to be named as an indendent expert to any 3rd parties, and he is the only target user of your product. You allow him to take it, repackage it as his own valuation opinion, and present it to investors as his opinion rather than coming from an independent party. You’ll be protected from lawsuits but business owners would love to show an independent opinion to investors, so he may not want you to do the work anymore…
Thanks for the advice mobius. I think hed just like to use it for a presentation to try and add weight to his getting a possible loan. Can I not just structure it to say that its just our opinion and should not be relied upon by other parties such as banks, potential investors etc. My plan is to do a comparables valuation for him as well. To see what similar type businesses, with similar earnings, functions etc are selling for.
it’s up to you brah, you can add all the disclaimers you want at the bottom of the page. obviously the most certain way to avoid any remote possibilty of a lawsuit from investors if $hit hits the fan is for you not to be mentioned at all.
murders&executions Wrote: ------------------------------------------------------- > Just tell him 5 to 7 times EBITDA and call it a > day. > LOL! Me likes your method. Props to Mobius for sound advice. You might also want to consider conflict of interest.