Business Valuations: When You Would Need One

  • Date04 February, 2012
  • Location USA

Business valuations in one form or another have been around for decades. As a result of the Eighteenth Amendment to the United States Constitution, the Internal Revenue Service began issuing memorandums and directives relating to methods for determining values and losses of businesses. This was primarily the result of the Prohibition of 1919 and the losses claimed by tax payers as a result of “Speak Easys & Bars” forced to close based on the laws of Prohibition.

In recent years, due to the Sarbanes- Oxley rules regarding the independence between the external auditor and their clients regarding consulting services, the business valuation has become a fast growing area for accounting firms to develop as part of their overall business service.

Owners of closely held companies throughout the country look to CPAs offering valuation services to complete full valuations of their businesses and financial assets. A valuation is used to determine not only the value of a company’s tangible assets, but the worth of intangible assets, as well.

There are many reasons for determining the value of a closely held business. Some of the more common reasons are:

  • Buy/Sell agreements
  • Mergers and acquisitions
  • Business partnership dissolutions
  • Division of assets in a divorce
  • Expert Testimony/Litigation Support:
  • Commercial Litigation Involving business disputes
  • Fraud and Arson Defense Involving insurance values

Because of their accounting and valuation background and certifications, Certified Valuation Analysts (CVA) at MDD have been retained to support attorneys and claims professionals in matters such as business disputes, products liability and intellectual property issues.

One such case involved actions of one U.S. company against another involving the establishment of Western style health care in Russia for expatriots. As a result of certain actions, suit was filed and MDD was retained to determine the “Loss of Value of Business” and projected future damages due to “predatory” actions of the competitor company.

Regardless of the reasons for the valuation, it is important to make sure the professional you have hired has the necessary experience and credentials to provide you with an accurate valuation, provide the necessary reports and is able to serve as an expert witness in any necessary legal proceedings. A CVA has not only demonstrated competence in his or her field, but is also more likely to be approved by trial judges as an expert in court cases and qualified to testify on your behalf.

By Roland Hoffman.

The statements or comments contained within this article are based on the author’s own knowledge and experience and do not necessarily represent those of the firm, other partners, our clients, or other business partners.