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By Theresa Cameron, Shareholder, Valuation and Litigation Group

There are many reasons you may require a valuation for business planning purposes. Perhaps you are considering an opportunity to retire or selling a portion of your business. Whatever the reason may be, it is important to have an accurate valuation of your business in order to make informed decisions. Many business owners are unaware of their company’s value, which is often their largest asset. Whether your company is big or small, there are various types of valuation reports to consider to help meet your needs and budget. 

Determining Your Valuation Need

Some of the most common reasons for exiting a business include: 

  • Your retirement 
  • Selling your business (in whole or in part) – maybe to a relative, employee, third party or another company has expressed interest 
  • Gifting your business (in whole or in part) for estate planning purposes 

Depending upon the purpose of your business valuation, more and less intensive valuation options are available.  

Types of Valuations

The two broad categories of analyses that business valuation experts provide are calculation engagements and valuation engagements.  

  • Calculation Engagement. In a calculation engagement, a valuation expert estimates the value of a business by applying valuation procedures agreed upon with the client and using professional judgment as to the value or range of values based on those procedures. 
  • Valuation Engagement. In a valuation engagement, a valuation expert estimates the value of a business by applying the valuation approaches they deem appropriate for the business. 

Please note, a valuation engagement is typically more thorough and time-intensive than a calculation engagement, as a full valuation often entails more procedures and analysis. The value determined under a calculation engagement may not be the same as the value determined in a valuation engagement. 

Valuation Reports

There are generally a few options available for valuation presentation. The simplest of which is a set of schedules, detailing the approach(es) relied upon and showing the supporting mathematical computations, with limited narrative support provided. In several instances, this limited report type may be adequate; however, this would never be permissible under Internal Revenue Service (IRS) reporting requirements, such as for gift or estate tax purposes. 

An additional option is a summary report, which is a narrative report that includes commentary on the company background, limited economic data and discussion of the valuation approaches utilized. 

Finally, the most intensive report is the detailed report. A detailed valuation report provides a narrative description of the subject company, economic data, a discussion of valuation approaches, detail of applicable discounts, and in general, a more thorough narrative analysis when compared to a summary report.  

Here to Help

Whether you need a simple “back of the napkin” business valuation or a more detailed valuation report, our dedicated valuation experts can help. Contact us to learn more about our business valuation services.