An aging population, increased regulation and the move toward fair value reporting have led to increased demand for valuation services in recent years. As baby boomers approach retirement and start thinking about succession and estate planning, the first step is often valuing the family business. Changes to the tax code require people doing valuations on certain assets to be a “qualified appraiser,” and the new fair value standards require valuation expertise to implement them.
While it is difficult to establish a valuation practice, it can be a rewarding specialization for your firm. Diversifying your practice will help with client retention, expand your client base, and drive revenue growth. Consider these steps for establishing a valuation practice:
Begin with your current client base. When advising clients on tax planning or estate planning issues, you will see instances where a business valuation is needed. Good first-time valuation projects could be for small family limited partnerships or small businesses.
Plan on spending a lot of time on your first valuations. Preparing checklists, learning how to comply with standards, and setting up models will be time-consuming. Use caution with software valuation packages as some have been found to have significant errors in their models and report-writing modules. It is important to understand the models used to develop your valuations as you should always assume you are preparing a valuation that will be defended in court.
Offer valuation services to local firms that don’t have the ability to do valuations for their clients. Many small firms don’t have the staff or ability to do valuation work for their clients, so this is a good source of revenue once you establish yourself as someone who can do quality valuation work. Your network of peers and your reputation with them will be very important if you decide to pursue this route.
Ensure that engagements are performed in accordance with any applicable guidance. The AICPA issued Statement on Standards for Valuation Services no. 1 (SSVS1) in June 2007, effective for all engagements entered into after Jan. 1, 2008. All AICPA members are required to comply with SSVS1. For CPAs, this standard has been adopted by most state accountancy boards, so check with your state licensing agency to see which standards must be followed.
Get a seasoned valuation expert to review your first reports. The report is often the end product that is seen by clients, and a well-written report can leave a lasting impression on clients and counsel. The report review, if done properly, will take several hours to perform, so plan on engaging a valuation specialist to do this work with the knowledge that you will have to pay for this review. A good place to identify experts is through the ABV locator, which is searchable by name or location, at findanabv.org.
Get a valuation credential. The American Society of Appraisers (ASA) and the National Association of Certified Valuation Analysts (NACVA) offer credentials available to CPAs and non-CPAs. The Accredited in Business Valuation (ABV) credential is available only to CPAs with an active license and is supported by the AICPA (visit aicpa.org/ABV for details). All of these credentials require an exam. The AICPA and ASA credentials also require actual experience performing valuations and minimum education requirements. A credential will be a valuable marketing tool to hold yourself out as meeting minimum requirements for knowledge and competency in performing valuation work. A credential can also identify you as an expert in litigation proceedings.
Market your valuation practice. In marketing your firm for valuation engagements, the end-user often is not the person who will hire the firm. Quite often it is the lawyer or other accounting firm that identifies the valuation specialists and engages them to do the valuation. Consider making presentations to local bar associations and bankers associations to explain what valuation is and why they should hire an expert. Networking with other local accounting firms can lead to valuable referrals for new work.
—By Eddy Parker, CPA, (firstname.lastname@example.org) an AICPA technical manager.