Business Valuation to Fit Your Needs

At Coker Group, we scope each business valuation engagement to match our client’s needs and to stand-up to any regulatory scrutiny that may arise down the road. We begin by gaining a complete understanding of the intended purpose of the valuation at the onset of discussions with a prospective client. These initial discussions allow us to match the client’s need for a business valuation with the appropriate business valuation engagement scope.

There are three generally accepted types of business valuation engagements, as outlined below:

‍Appraisal:

An Appraisal is an act or process of determining the value of a business, business ownership interest, security, or intangible asset with the objective to express an unambiguous opinion as to the value of a business, business ownership interest, security, or intangible asset. This opinion is supported by all procedures that the appraiser deems to be relevant to the valuation.

An appraisal has the following qualities:

1. Its conclusion of value is expressed as either a single dollar amount or a range;
2. It considers all relevant information as of the appraisal date available to the appraiser at the time of performance of the valuation;
3. The appraiser conducts appropriate procedures to collect and analyze all information expected to be relevant to the valuation; and
4. The valuation considers all conceptual approaches deemed to be relevant by the appraiser.[i]

Based on the level of due diligence, analysis, and documentation required within a full appraisal, this is inherently the highest cost type of business valuation engagement. However, if deemed necessary, the cost of a full appraisal up-front should be viewed as an investment toward future peace of mind that you have navigated the highly regulated and scrutinized healthcare industry within the boundaries of the law.

‍Limited Appraisal:

‍The objective of a limited appraisal is to express an estimate as to the value of a business, business ownership interest, security, or intangible asset. The development of this estimate excludes some additional procedures that are required in an appraisal.

A limited appraisal has the following qualities:

1. Its conclusion of value is expressed as either a single dollar amount or a range;
2. It is based upon consideration of limited relevant information;
3. The appraiser conducts only limited procedures to collect and analyze the information that such appraiser considers necessary to support the conclusion presented;
4. The valuation is based upon the conceptual approach(es) deemed by the appraiser to be most appropriate.

A limited appraisal should be viewed as a directed appraisal of the subject business. In comparison with a full appraisal, where all business valuation approaches are considered, in a limited appraisal, the valuator may only consider one or two approaches based on their review of the information available and their experience with similar entities. Furthermore, as a limited appraisal is not accompanied by the level of due diligence, analysis, and documentation required for the most scrutinized of transactions, the cost is lower and the turnaround time is quicker relative to a full appraisal.

‍Calculation:

‍The objective of a calculation is to provide an approximate indication of value of a business, business ownership interest, security, or intangible asset based on the performance of limited procedures agreed upon by the appraiser and the client.

A calculation has the following qualities:

1. Its result may be expressed as either a single dollar amount or a range;
2. It may be based upon consideration of only limited relevant information;
3. The appraiser collects limited information and performs limited analysis;
4. The calculation may be based upon conceptual approaches agreed upon with the client.

A calculation engagement is worthwhile for management planning purposes where the reliance on the indicated value is more informative rather than critical for compliance purposes. Due to the limited procedures performed, a calculation of value can be turned around quickly and at the lowest cost.

‍Conclusion

‍It is critical for a valuator to understand the intended use of the valuation at the onset of the engagement process. If the valuation is to be used to determine the price in a transaction subject to compliance scrutiny, a formal appraisal would be recommended. However, if the client is in the early stage of exploring a potential transaction and, therefore, only needs to get a ballpark idea of value, it would make sense to conduct a calculation or a limited appraisal instead. Ultimately, each engagement type discussed above can play a critical role in allowing a business to effectuate their operational strategy in the timeliest, most cost-effective manner possible while remaining in the boundaries of the healthcare regulatory environment.

‍Contact Coker Group today about valuation assistance for your organization.[i] American Society of Appraisers, ASA Business Valuation Standards, 2009. http://www.appraisers.org/docs/default-source/default-document-library/bv-standards.pdf?sfvrsn=2. Accessed July 17, 2019.