Financial ReportMany times at Synergetic Finance we are approached by business owners seeking to do non-traditional non-compliant Business Valuations.  Before diving in to do the work, we will explore the purpose of the engagement with our clients.  Often times they need help understanding the Valuation engagement, as well as choosing among the different services we offer.  It may take time to understand the client, but it is critical to finding out their goals and delivering what they truly want and need.  Since business owners currently are hearing much about the importance of valuing their business, the request may seem implicitly clear.

As we illustrate the many perspectives regarding value, we walk clients through the various types of products available.  This process is revealing, as many business owners may have more than one need for having their firm valued.  As we provide detail regarding the techniques that are applied, clients gradually become more aware of their particular situation, and a light bulb goes off to help us identify the correct next step.

The first step in answering the “What do you want?” question is to identify the audience or audiences you are targeting to show the valuation.  As a business owner, you need to further identify the level of depth required to uncover the necessary details in valuing your business.  Answering questions along these lines drives the discussion to pinpoint the estimated time required to complete the engagement.  A valuator is hired for his expertise and credentials, and should be able to explain the process clearly, but will definitely need direction, data, and input from you to begin the process.  Upon completion, a competent valuator will show you their thinking process, how they arrived at their conclusions, and explain clear logic to support conclusions.

There are many methods available to identify value, and valuation engagements differ widely based on scope, audience, and time.  The following broad categories will assist you in engaging a valuator to perform the service.  Exploring your requirements ahead of time will clear up confusion regarding the purpose of valuation, the person to hire who will perform the service, the timing needed, and the payment expectations to complete the assignment.

1.       Assessment

The majority of business cases we see are looking for an Assessment instead of a Valuation.  An Assessment addresses an informal setting, and differs substantially from a formal valuation in its scope and depth of work.  An Assessment may be very thorough, but it is likely only used for internal purposes.  A business owner may be merely seeking to assess an approximate value for internal purposes in making corporate decisions.  We may use a few techniques or more depending on what has been agreed upon with our client.  A deeper dive may not be required for what you currently need, and it often costs less to do an Assessment.  It is important to understand this type of product and why it might be used, as an Assessment may be a good fit your needs while also giving room to perform additional valuation work as greater needs arise.

2.       Valuation for Strategic Purposes

After establishing that you may require more than an Assessment, the second most likely case for doing Business Valuation work involves Strategic Purposes.  This type of valuation is for a more formal setting regarding specific business reasons, management support, or both.  Value is the starting point to establish the strategic direction of the company, and more detailed documentation may be needed to establish the value.  The strategic need may be for internal or external audiences, and it does require more time to produce than an informal Assessment.  A list of potential strategic purposes for valuing your company include, but are not limited to the following:  Raising Capital, Financing Arrangements, Buy / Sell Agreements, Mergers & Acquisitions, Bankruptcy and Foreclosures, Liquidation and Reorganization, Sale / Purchase of a Business, Split-ups / Spin-offs, Succession / Exit Planning, Business Planning, Lease vs. Buy Analysis, Stock Options Incentives, Performance Measurement, and changes made to the Ownership Structure.

In this type of Valuation, it is important to have the final document match other important company documents.  An important area of litigation focuses on specific disputes arising from differences in value generated through strategic purposes when an event occurs that brings that value into question.  It is therefore recommended that you update this Business Valuation yearly to establish your company’s value while continuing to keep the house in order.  Since this purpose is primarily a planning function, certain companies find that any time they update corporate documents, it creates a good opportunity to update the formal Business Valuation at the same time.

3.       Valuation for Authoritarian Purposes

Finally, the last type of Valuation we come across regarding Business Valuation is for Tax Purposes or Litigation Situations.  Valuing for strategic purposes differs from this type in that Authoritarian driven valuations involve issues regarding the courts or the government.  Some examples of this type of valuation product include but are not limited to the following:  Life Insurance, Charitable Contributions, Estate / Gift Tax, Executive Compensation, Gifting Programs, Dissenting Shareholders, Divorce, Partner Disputes, Mediation and Arbitration.  While certain areas may overlap with strategic planning functions, Authoritarian purposes are always for a formal setting and involve governing bodies.  Niche specialty valuation firms may focus exclusively in specific areas within this field of valuation work due to the level of expertise needed to deal with the courts and solve critical legal issues.


All three types of valuations use similar process to value your company, but may employ different techniques or dive deeper into certain issues depending on the ultimate purpose required.  All types may be critical to you in building a successful business.  A Business Valuation results in a range of numbers which is often expressed as a single number based on the valuation professional’s judgment.  Valuators with the same training may have different opinions in how they view corporate information, however the conclusion should be logical from the provided data and the assumptions that were made.

Pricing for Valuation Appraisal services usually come in the form of a flat rate based on the amount of time required to perform this service for your particular business.  Valuing a firm with $1 Million in Sales and 10 employees in one location will likely differ in price from a firm with $15 Million in Sales and 150 Employees located in different markets.  This is largely due to the amount of time required to thoroughly understand and value a business of increased size and complexity.  A time frame of 60 to 90 days is a good starting point, but that may be longer or shorter depending on the complexity involved.

An additional point to be made regarding the three types of Valuation products concerns certain standards we must adhere to that are set forth from NACVA (National Association of Certified Valuators and Analysts).  Being holders of the AVA (Accredited Valuation Analyst) credential designated by NACVA, we are bound by strict standards to issue a conclusion of value by following a set process.  Assessments fall outside of formal valuation work, may have similar numbers, but are not held to these standards.  Therefore, these reports are not admissible in court or other formal settings.

If you would like to further explore how a Business Valuation can help you, please call Synergetic Finance at 206-386-5455.

To your success,

Mark Girouard, MBA, AVA, CMA&A
Synergetic Finance

Mark Girourd answers:  does my business need a valuation or an assessment?