VALUE - Big Sky Business Valuations

You Get What You Pay For

A business valuation should not be viewed as a commodity, but as an essential service that can reduce the likelihood of a negative event occurring.

Many entrepreneurs’ business interests are their most valuable asset. Unfortunately, many view business valuations as a check the box requirement, something the IRS, a lender or a judge requires. As a result, some may be tempted to seek the valuation offering with the lowest price tag such as fill-in-the-blank software available on the internet.

But, you get what you pay for. Many people provide business valuation services, but their qualifications vary significantly. On one end of the spectrum are valuation professionals who are accredited by one of the following organizations:

The National Association of Certified Analysts;
The American Society of Appraisers; and
The American Institute of Certified Public Accountants.

At the other end is online fill-in-the-blank software, which is typically based on oversimplified formulas or industry rules of thumb and is not a good substitute for a professional valuator’s training and judgement.

Many important decisions, such as selling your business or obtaining a loan may hinge on a business appraisal. If the valuation is not accurate, you could leave a lot of money on the table, be sued by stakeholders, or face penalties from the IRS.

For example, a valuation prepared by a certified valuator is more likely to withstand the scrutiny of an IRS challenge. In fact, a large penalty could be assessed if you fail the good faith provision of Internal Revenue Code section 6662 (The Substantial and Gross Valuation Misstatement Penalty). Hiring a certified valuator goes a long way toward fulfilling that requirement.