Measuring Public Companies
Is Business Appraising BY ELIZABETH DANZIGER
What brings such a diverse group of CPAs to share this professional path? Most say they love the niche. “Without a doubt, business valuation is the most exciting part of accounting,” says Cyril Mandelbaum, CPA, of Clifton Gunderson in West Des Moines, Iowa. Mandelbaum was in general litigation support services when a lawyer she worked with suggested she would make a great BV professional. Mandelbaum since has earned three BV designations (ABV, AM and CVA; for designations, see sidebar below) and is now regional director for business valuation at the firm.
Barry Sziklay, CPA, ABV of Cipolla Sziklay Zak & Co., LLC, in West Orange, New Jersey, says his experience as an investment banker gave him the drive—and confidence—to pursue BV. Sziklay worked at an investment banking firm in Manhattan for ten years. Accounting, investment analysis and tax planning formed the backbone of his expertise in business valuation.
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Both CPAs love the appraising business. They earn more now that they offer this service, and they feel good about the opportunity to spread their wings beyond the scope of traditional accounting. Sounds great, but is it an option for everyone? Sziklay says that BV is a highly challenging business requiring an unusual set of skills. “It is not for the faint of heart,” he says. To learn if you have the right stuff to pursue a career in business valuation and how to get the training you’ll need to do it, read on. WHAT IT IS A CPA who performs a BV engagement must determine the value of a business, often a privately held business. “Clients may request a business valuation for a variety of reasons, including financing, income tax, estate tax, gift tax, buy–sell agreements among partners and S-to-C-corporation conversions,” says Sziklay. “Since such things are not bought and sold every day, you have to have a method of determining their value.” Practitioners generally use several methods to calculate a business’s value; then they integrate the findings in a comprehensive report to the client. CPAs are well prepared to analyze the numbers, but Sziklay says that the quantitative aspect is based on theories of finance, not GAAP. In other words, being able to understand a financial statement does not mean a CPA automatically will grasp the true market value of the business.
WHAT THE BEST HAVE IN COMMON Regardless of how they come to the business valuation field, successful BV practitioners share many traits. Although quantitative skills are essential, “soft” skills matter just as much. CPAs who have been successful offering BV tend to
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DEALING WITH PRESSURE You might think of business valuation as “extreme accounting.” By its nature, the process pits a CPA’s ethical objectivity against a client’s agenda. BV clients have a specific goal, such as setting the value of a partnership dissolution, divorce or tax issue. They also have a clear idea whether a high or low valuation will benefit them most. However, a business valuation professional must never succumb to the influence of being pressured by a client to reach a particular value. William Kennedy of Reilly Consulting in Boston says, “The one thing you have to do in that environment is maintain objectivity. You can’t generate a reputation of being a hired gun.” It takes strength, assertiveness and grace under fire to fend off subtle—and not so subtle—efforts to steer a valuation toward an outcome. Litigation cases generate the greatest pressure for the BV professional. Clients and attorneys care intensely about a business’s assigned value, and they are not afraid to push the evaluator to justify his or her results. A good business valuation professional must be able to push back. Eva M. Lang, CPA, ASA, of the Financial Consulting Group in Memphis, Tennessee, says, “Not everyone is suited to being cross-examined by and taking abuse from attorneys. We joke about living on Tagamet, but the pressure can be enormous.” In addition to the pressure that comes from being an expert witness in a litigation procedure and undergoing hours of depositions, appraisers are often required to determine a value very quickly. As Frank Percuoco, of Reilly Consulting, says, “By and large our BV clients are litigators. If tomorrow is the filing deadline on a discovery motion, we’re liable to get a call at 5 p.m., when they get out of court. They need to know that the required documents will be faxed to them by sunrise the next day.” If you love the adrenaline rush that comes from meeting a tight deadline, you will love BV.
COMMUNICATING CLEARLY “The best BV practitioners are effective communicators” of what they know, says Butch Williams, CPA, ABV, CVA, CBA, of Williams, Taylor & Associates in Birmingham, Alabama. “You must be able to convey your findings succinctly to a judge, jury or client.” Good public speaking skills are important too, both for courtroom appearances and for networking within the professional community. “It’s important to create good relationships with attorneys’ groups and to keep up your contacts within the legal community,” says Lang. Most referrals come from attorneys, and being on good terms with businesspeople in your city can lead to many opportunities. That means being a good speaker and an even better listener. Good writing skills are also key. According to Lang, the end product of a business valuation engagement is a detailed report outlining the value of a business. The report lays out the basis for the judgment. “The CPA must have excellent writing skills to be able to convey the rationale for his or her valuation. A good BV professional can weave all the elements of the valuation into a coherent story,” says Lang. To do this successfully, a CPA must be able to explain complex issues simply and clearly. ABILITY TO MESH THE DATA “The most difficult aspect of the work is being able to match actual numbers with intangibles and come to a reasonable value,” says Cyril Mandelbaum. “This business requires you to think, analyze, synthesize and be intuitive.” Accountants—who are schooled in calculating book value—must focus on market value, which involves intangibles such as market trends, goodwill and management skill. At each step, BV experts must make judgments and support their conclusions, says Lang. They must always ask themselves “Why did I chose one growth rate over another? Why did I choose this discount rate instead of that one?” Practitioners usually apply several valuation approaches to the same business and then integrate the information. THE COST OF CREDENTIALS One does have to spend money to make money. In addition to the time needed to earn a BV designation, a CPA must be prepared to lay out several thousand dollars on course fees, travel expenses and resource materials. Lang estimates that a basic BV library costs about $5,000, although CPAs can reduce that amount by sharing resources with other practitioners and using resources available at public and university libraries. Factoring in course fees, travel expenses books and manuals, she estimates that it may cost about $10,000 out of pocket to get started in this field. Moreover, professional training in business valuation never really ends. Williams says, “Professionals in our organization typically spend about 40 hours per year on continuing education.”
GETTING EXPERIENCE After getting an initial designation, a CPA will still need hands-on practice before flying solo. Valuing a business accurately requires judgment, and good judgment is a product of experience. How do you get it? “Apprentice yourself to other firms that are doing business valuation,” suggests Lang. “Go to work for a firm that has a business valuation division.” Even after a CPA has done a few projects as an apprentice, it’s wise to keep the projects small for a while. According to Kennedy, if a CPA is starting at ground zero it’s not the time to take on the big or complex stuff. “Enter into a joint venture with other firms. A small engagement would be valuing a fairly simple, single-line business that has revenue less than five million dollars,” says Kennedy. Whether a CPA apprentices, finds a joint venture or finds a mentor, he or she will have to work closely with a seasoned professional before stepping out alone. MARKETING FOR BUSINESS Once a CPA has gotten initial training and experience, there are several ways to bring clients in the door. Lawyers are important gatekeepers for BV engagements, so they are a target for marketing efforts. A CPA also can pursue a particular niche, such as valuing medical practices or automotive dealerships, and become known as a specialist. In addition, participating actively in professional organizations is always a good way to connect with business prospects. “You’ve got to be able to market yourself,” says Percuoco. “In our firm, when we don’t see things moving along, we start pounding on the doors of the law firms. I have my secretary make lunch appointments at a fancy place so no one wants to turn us down. We go in there armed with all our materials and we shake their hands and ask for business. We tell them we feel we are among the best in the business.” This direct approach has worked well for Reilly Consulting but different approaches work, too. Mandelbaum held a luncheon at her home for all the women attorneys at a firm that provides her with many referrals. “From that one event I generated an enormous amount of business,” says Mandelbaum. She also keeps a small display ad in the Iowa Bar Journal. Fellow CPAs also are a potential source of referrals. Other accountants may be more likely to refer business valuation engagements if they are confident the CPA will not try to sell other accounting services to their clients. Kennedy says, “We’re very clear to any fellow CPA that refers work to us that we follow a nonencroachment policy. If we’re asked to do a valuation for another CPA firm’s client, we absolutely will not go back and try to sell that client other traditional services. That’s been a very important key to the referrals from other firms.” Conferences, conventions and other meetings of professional associations provide other avenues for marketing. According to Mandelbaum, conferences offer outstanding programs as well as great networking opportunities. The ASA, NACVA and the AICPA hold conferences at which CPAs can learn, network and create alliances. ARE YOU TOUGH ENOUGH? Opportunities are growing for CPAs who have the strength and flexibility to succeed in the field. “The business valuation market is expanding rapidly, so chances are greater today than ever that a CPA will have a client with a business valuation need,” says Lang. Business valuation is definitely not for everyone. CPAs who get ulcers from deadlines and who hate to write are probably better off leaving business valuation to type-A colleagues. Those who might want to pursue it need to answer the following questions:
A CPA who answers yes may want to put down this magazine, sign up for the next BV course and change careers. | ||||||||||||||||||
aluation is about setting the right price—a demanding service someone has to perform. So who are the CPAs making their living evaluating the fair market value of business entities? They are a mixed bag. For some, offering business valuation (BV) has been a natural outgrowth of estate planning. Others have started as expert witnesses for attorneys litigating a divorce, dissolution of partnership or other disputes. Many have found their way to performing valuation services from business and industry careers in finance, investment banking or corporate tax. 
