Selecting an Appraiser
Most professionals, such as doctors, attorneys, engineers, dentists, etc. have clearly defined career paths that must be followed to enter their profession. Typically, a specific college program must be completed followed by some examination for licensing or other certification.
Unfortunately, the business valuation profession does not have a clearly defined path. No specific college major exists for business valuation, nor are there any governmental licensing requirements to prove minimum competency. Because of this lack of a specific career path and licensing requirements, many individuals with different backgrounds claim expertise and perform business appraisals often with poor results.
Business appraisers typically come from one of the following groups: certified public accountants (CPAs), business brokers, college professors, and stockbrokers. Without special training and business valuation credentials, none of the individuals from these groups are competent to do business appraisals. Very few individuals actually performing business appraisals have earned a professional designation from a recognized professional organization certifying business appraisers.
For years many assumed CPAs were competent in valuing businesses. In 1997 the American Institute of Certified Public Accountants (AICPA) established a special credential for business valuation called Accredited in Business Valuation (ABV) to demonstrate competence in business appraisal. This seems to indicate that the vast majority of CPAs nationwide have little or no training or expertise in business valuation. Another problem for CPA's is potential conflicts of interest. In 1991, another organization called the National Association of Certified Valuators and Analysts (NACVA), exclusively for CPAs, was also formed to give CPAs some training and a credential in business valuation called Certified Valuation Analyst (CVA). However, only approximately "one percent" of the CPA's across the nation currently hold either of these two credentials in business valuation.
Business brokers sell businesses, but most have no training in business valuation. Often business brokers use generic rules of thumb to list and sell businesses. Also, many business brokers lack the financial expertise necessary to properly analyze a company's financial statements.
College professors typically have expertise in financial theory and may be able to analyze financial statements, but they often try to apply sophisticated financial techniques designed for very large companies to small privately held companies. They also often lack the "real world" experience necessary to properly value most privately held companies.
Stockbrokers and stock analysts usually have the ability to analyze financial statements and understand public markets. However, they typically have no experience dealing with privately held companies.
In order to meet the need of demonstrating competence in business valuation, several professional organizations have evolved that certify business appraisers. Additionally, often a business appraisal is done because of some type of litigation. Historically, it was fairly easy to qualify an individual with a business background as an "expert witness." In 1993, this began to change. Now, trial judges are deemed to be "gatekeepers." Meaning that the trial judge has the ability to exclude experts if they do not meet appropriate standards. It is now more important than ever to ensure that an expert witness has the credentials and experience to survive a challenge. Otherwise, their testimony might be excluded in court, or perhaps, admitted but given little or no weight.
The four organizations in the United States that certify business appraisers are: 1) The Institute of Business Appraisers, Inc.; 2) the American Society of Appraisers; 3) the National Association of Certified Valuators and Analysts; and 4) the American Institute of Certified Public Accountants. The table shown below compares and contrasts the requirements to obtain credentials from each of these professional organizations. Before you select a business appraiser, carefully review his or her credentials and experience. Generally, those who have obtained the more difficult credentials, such as the Certified Business Appraiser (CBA) from the Institute of Business Appraisers or the Accredited Senior Appraiser (ASA) in business valuation from the American Society of Appraisers, will do high quality work and be well regarded in court.
Business Valuation Credentials
A Comparison of the Primary Requirements to Obtain & Maintain a Credential
|Experience||Minimum of two assignments--two reports must be submitted and approved||5 Years for ASA; 2 years for AM||No Minimum||Involved in 6 Business Valuations|
|Qualifying Exam||Proctored, Closed Book||Proctored, Closed Book. Also must pass an Ethics Exam. A USPAP exam must be passed every five years||Take-Home, Open Book until 1999; Proctored, Closed Book starting in 1999. Exam includes a report writing portion.||Proctored, Closed Book|
|Report Review Requirement||Yes, 2 Reports rigorously reviewed by leading Business Appraisers||Yes, 1 Report rigorously reviewed by leading Business Appraisers||1 case study||None|
|Continuing Professional Education||Yes, 36 Credits every three years or equivalent||Yes, 40 Credits every five years||Must maintain CPA credential. 36 Credits every three years||60 Credits and involvement in 5 reports every 3 years|
|Organization has Professional Standards||Yes, for over ten years||Yes, for over ten years||Yes, since 1995||Under Consideration|
Organizations Awarding the Above Referenced Business Valuation Professional Designations
|(1) CBA||Certified Business Appraiser from The Institute of Business Appraisers, Inc.|
|(2) ASA/AM||Accredited Senior Appraiser/Accredited Member from the American Society of Appraisers|
|(3) CVA||Certified Valuation Analyst from the National Association of Certified Valuators and Analysts|
|(4) ABV||Accredited in Business Valuation awarded to CPAs by the American Institute of Certified Public Accountants|
In summary, the Certified Business Appraiser (CBA) and the Accredited Senior Appraiser (ASA) in business valuation designations are the two most difficult designations to achieve in the business appraisal profession due to the rigorous peer review report requirements.
NBVG views the rigorous peer review report review requirement as the most important component of professional certification. All members of the National Business Valuation Group have either the Certified Business Appraiser (CBA) and/or the Accredited Senior Appraiser/Accredited Member (ASA/AM) designation.
If you have any questions on BV credentials or selecting the right business appraiser, contact your nearest NBVG professional.