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Reviewing Your Company’s Valuation Report

Posted on in Family Businesses

TX divorce lawyerIn the absence of a pre or postmarital agreement, a couple who has decided to divorce and who owns businesses will need to decide how those assets will be divided, which will also require an accurate business appraisal. These appraisals are conducted by experts, but it’s still important to carefully review them for accuracy. However, the technical language of these documents can make their review a difficult process, so if you are considering divorce and own one or more businesses, it is important to retain an experienced Austin, TX high asset divorce lawyer who can go over the appraisals with you and ensure that the terms of any property settlement agreements are fair.

Professional Standards

Before requesting a business valuation, it is important for divorcing couples to ensure that the appraiser is qualified to perform the analysis and has the proper credentials. There are three main professional associations that issue valuation standards for appraisers: the American Society of Appraisers, the American Society of Certified Public Accountants, and the National Society of Certified Valuation Analysts. Ensuring that your own appraiser has been credentialed by one of these groups is one of the first steps that a divorcing couple should take when seeking an appraisal.

Clarity and Thoroughness

Once a business valuation has been completed, the appraiser will create and submit a valuation report. Upon review, this report should be clear as to the purpose of the appraisal and include information about:

  • The valuation methodology used by the appraiser, namely whether they utilized the income, market, or asset approach
  • The parameters of the assignment
  • The property to be valued
  • The ownership characteristics that were valued
  • Basic company information
  • The date that the valuation was conducted
  • A valuation synthesis and conclusion

Valuation reports should also be comprehensive, so it’s important to keep an eye out for statements in the report indicating that the correct procedures were not performed, or that the appraiser lacked necessary data. To this end, couples should take note of whether outdated information was used in reaching the appraisal and whether there is evidence indicating that the data sources were not credible. Finally, it’s important to assess whether the financial projections included in the report are reasonable based on the company’s historical performance and the state of the industry in general.

Methods of Value

Appraisers use three valuation approaches, which are known as the income, asset, and market approaches. Typical appraisal reports use at least two of these methods and when applied, both should result in amounts that are close in value. Significant swings in the value of each method could indicate that the appraiser made an error, such as a simple math mistake or an error in assumption.

Seeking Legal Assistance

To speak with an experienced Austin, TX high asset divorce lawyer about reviewing your own business’s valuation report, please call Powers and Kerr, PLLC today. A member of our team can be reached at 512-610-6199 or via online message.

 

Source:

https://www.cpajournal.com/2017/12/12/helping-business-owners-understand-valuation-approaches/

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