We are often asked if we are also accountants as traditionally, most people went to their local accountant for any business valuation requirements. And the answer is a resounding, no – we are not accountants, we do not do tax work, we do not perform audits. We leave that work up to the professionals and stick to our craft. This is essentially why a lot of our clients and key relationships in place are in fact with CPA firms and the trusted CPAs of our small and middle market business owners.
So why engage a Certified Valuation Analyst (CVA) instead of work with the CPA you already know? Think of it this way, if you had issues with your heart, would you go to a general practitioner or seek out a cardiologist? While you may start with a check up at your GP, both you and your doctor would agree that having a full work up by a specialist is best. Think of us as that specialist. Valuation work is all we do, so we are efficient, well versed in current industry developments and case law, and more than likely have performed valuations in the same and/or similar businesses – adding to our in depth understanding of the market and intrinsic values closely held and entrepreneurially held businesses present.
As any business owner will tell you, there is a lot more to the value of a particular business than the black and white numbers presented on a tax return. Lower and middle market businesses live and die by key contributing growth factors such as customer relationships, contracts, recurring revenue streams, vendor relationships, location, managerial hierarchy, patents, technology, ownership structure, and market awareness, among many other things.
It is a valuation analyst’s job to be a story teller above and beyond the important job of working with owners to uncover the revenue and expenses directly tied to and needed to run each business. Proper interpretation of financial information is a crucial step in the valuation process. Corporate financial statements are often prepared for tax reporting and do not necessarily reflect the discretionary recast earnings required to value most privately held companies. The financial statements must be interpreted to present the total adjusted earnings. In many cases, when valuing privately held companies adjustments must be made for applicable one-time or non-recurring income & expenses, normalized ownership perks and fringe benefits, above or below market value salaries, non-cash expenses such as depreciation and any other expenses that would not be applicable to an acquirer. In depth discussions with management and their advisors (oftentimes a Company’s CPA) are necessary to perform this important step.
There are two important take aways to today’s article:
- We are not CPAs, nor do we pretend to be.
- We love our CPA friends and enjoy working with them. We’re happy to point business owners in need of a quality CPA to them, and pride ourselves on providing top-notch service to their valued clients.
For more information on our qualifications or to read about the NACVA’s decision to create one designation for all valuation analysts (both CPA’s and non-CPA analysts), click here.