Key takeaways
- Business valuation is not a licensed profession in most states for businesses (unlike real estate appraisal). Anyone can call themselves a “valuation expert,” so credentials, standards and experience matter.
- Respected credentials include the ABV, CVA, ASA, CBA and CFF for business valuation and forensic work, and the MAI and SRA for real estate.
- Credible valuators follow recognized professional standards, such as USPAP, the AICPA’s VS Section 100, NACVA standards or ASA standards.
- Match the type of engagement and report to its purpose. A calculation of value is not a substitute for a full conclusion of value in tax filings or litigation.
- Be wary of appraisers who promise a number, charge contingent fees, or lack experience in your specific purpose or industry.
A business valuation can determine how much estate tax a family pays, how a marital estate is divided, what a buyer offers, or whether a shareholder receives a fair buyout. Yet many owners choose a valuation professional the way they might choose any other vendor: on price, availability or a quick referral.
The choice of expert often determines whether the valuation holds up, in front of the IRS, a judge, a lender, a buyer or an opposing expert. This guide explains what to look for.
Why credentials matter
In most states, real estate appraisers must be licensed or certified, but there is generally no state license requirement to value a business. That means quality varies widely. Credentials provide evidence that the professional has: – completed specialized education; – passed examinations; – demonstrated experience; – agreed to follow professional and ethical standards; and – maintained continuing education.
Business valuation and forensic credentials
| Credential | Awarding organization | What it signifies |
|---|---|---|
| ABV (Accredited in Business Valuation) | AICPA | CPA or qualified finance professional with valuation education, experience and exam; follows AICPA valuation standards |
| CVA (Certified Valuation Analyst) | NACVA | Valuation training, examination and experience requirements |
| ASA (Accredited Senior Appraiser, Business Valuation) | American Society of Appraisers | Rigorous education, peer-reviewed reports and experience; multidisciplinary appraisal organization |
| CBA (Certified Business Appraiser) | Originally the Institute of Business Appraisers | Business appraisal education, exam and report review |
| CFF (Certified in Financial Forensics) | AICPA | Forensic accounting, litigation support and expert witness competency |
| CFA (Chartered Financial Analyst) | CFA Institute | Investment analysis expertise; often relevant for complex securities and capital markets issues |
Real estate and asset appraisal credentials
| Credential | Awarding organization | Focus |
|---|---|---|
| MAI | Appraisal Institute | Commercial and industrial real estate |
| SRA | Appraisal Institute | Residential real estate |
| State certification | State appraisal boards | Required for most federally related real estate transactions |
| ASA (Machinery & Technical Specialties) | American Society of Appraisers | Machinery and equipment |
When a business owns significant real estate or equipment, a valuation may require multiple specialists. Foxboro Consulting Group’s team, for example, combines business valuation credentials (ABV, CVA, CBA, CFF) with commercial real estate appraisal credentials (MAI, SRA). See our team’s experience.
Professional standards
Credible valuators follow recognized standards that govern how they develop and report a valuation:
- Uniform Standards of Professional Appraisal Practice (USPAP): Published by The Appraisal Foundation. Mandatory for state-licensed real estate appraisers in many contexts, and often followed for business valuation (Standards 9 and 10 address business appraisal).
- AICPA Statement on Standards for Valuation Services (VS Section 100): Applies to AICPA members performing business valuations.
- NACVA Professional Standards.
- ASA Business Valuation Standards.
- International Valuation Standards (IVS), relevant in some cross-border and financial reporting contexts.
Standards address independence, objectivity, scope, documentation, and report content. A report that does not identify the standards followed is a warning sign.
Match the engagement to the purpose
Conclusion of value vs. calculation of value
Under AICPA standards, there are two main types of engagements:
- Valuation engagement (conclusion of value): The valuator applies the approaches and methods they deem appropriate and is free to consider all relevant information. This is generally appropriate for tax filings, litigation, transactions and other high-stakes purposes.
- Calculation engagement (calculated value): The valuator and client agree in advance on the approaches, methods and procedures. It’s narrower and less expensive, and may be useful for internal planning, but it is generally not appropriate where the valuation must withstand independent scrutiny.
Report types
- Detailed (comprehensive) report: Full documentation of the analysis; typical for tax, litigation and transactions.
- Summary report: Abbreviated presentation of a full analysis.
- Calculation report: For calculation engagements.
- Oral reports: Sometimes used in litigation, subject to standards.
Standard of value and purpose
The valuator must apply the correct standard of value for the purpose, such as fair market value for gift and estate tax, fair value for shareholder dissent, or investment value for a specific buyer. See our article on standards of value.
Purpose-specific requirements
IRS: gift, estate and charitable purposes
For tax purposes, the IRS expects a qualified appraisal prepared by a qualified appraiser. Treasury regulations for charitable contributions, for example, require appraisers to have verifiable education and experience and to follow generally accepted appraisal standards. Gift and estate valuations commonly follow the framework of Revenue Ruling 59-60. Appraisers can face penalties for substantial valuation misstatements. See our article on business valuation for gift and estate tax.
Litigation: divorce, shareholder disputes and damages
In litigation, the expert must be able to defend the work under cross-examination, and expert testimony must meet the court’s admissibility standards. Look for: – testimony experience in the relevant court; – understanding of state case law on goodwill, discounts and standards of value; and – credentials like the CFF for forensic matters.
See our articles on business valuation in divorce and litigation support services.
Transactions and lending
Buyers, sellers and lenders want valuators who understand deal structure, quality of earnings and market evidence. SBA lenders have specific qualification requirements for appraisers in certain loans.
Financial reporting
Valuations for purchase price allocations and impairment testing must satisfy auditors and follow ASC 805, ASC 350 and ASC 820.
Questions to ask before hiring a valuation expert
- What credentials do you hold, and from which organizations?
- Which professional standards will you follow?
- How many valuations have you performed for this purpose?
- What experience do you have in our industry?
- Have you testified as an expert? In which courts? Have you ever been excluded?
- Who will do the work, and who will sign the report?
- What type of engagement and report do you recommend, and why?
- What information will you need from us?
- What is the timeline?
- How are fees determined? Are any fees contingent on the result?
- Are there any conflicts of interest?
- Can you provide sample reports (redacted) or references?
Red flags
- Promising a specific value before doing the work.
- Contingent fees tied to the valuation conclusion. Professional appraisal standards generally prohibit compensation contingent on the reported value.
- No credentials or credentials unrelated to valuation.
- Unfamiliarity with the purpose, such as an M&A broker preparing a valuation for an estate tax return.
- A report that doesn’t explain methods, assumptions and data sources.
- Rules of thumb used as the primary method without support.
- Unwillingness to explain the work in plain language.
How much does a business valuation cost?
Fees depend on the purpose, complexity, number of entities, quality of records, and whether testimony is required. A narrowly scoped calculation for planning costs less than a full valuation for litigation. Rather than choosing on price alone, consider the cost of a valuation that fails to hold up: penalties, adverse court outcomes, or a poorly negotiated deal.
Frequently asked questions
If your CPA has valuation credentials and experience for your specific purpose, yes. Independence matters; a CPA who also prepares your tax returns may face scrutiny in some contexts.
No. A broker’s opinion of value is typically a marketing estimate, not an independent valuation following professional standards.
Often several weeks after receiving the requested information, depending on complexity and purpose.
If the business owns significant real estate, a separate appraisal by a qualified real estate appraiser is often appropriate.
The bottom line
The value of a valuation depends on the credibility of the person who prepared it. Choose a professional with the right credentials, standards and experience for your purpose, and insist on a clear, well-supported report.
Foxboro Consulting Group, Inc. brings together CPAs, credentialed business valuation analysts, forensic accountants and MAI-designated real estate appraisers. Contact us to discuss your valuation needs.
This article is for general informational purposes and does not constitute legal, tax or valuation advice.
