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A professional Business Valuation provides an objective measure of a business’s worth – an essential step for informed decision-making in sales, mergers, and strategic planning.
Business valuations have become an essential service for accountants and financial advisors in today’s market. As a Certified Public Accountant (CPA), you are a trusted partner for business owners who rely on your financial expertise. Yet many clients will eventually ask a pivotal question: “What is my business worth?” Answering this confidently requires a solid understanding of Business Valuation principles. This comprehensive guide will equip CPAs and other financial professionals with knowledge about the types of valuations, valuation methods, use cases, and the opportunities of white-label valuation services. Written in a professional, approachable tone, this article aims to be a detailed resource that feels both trustworthy and useful. We’ll also show how services like SimplyBusinessValuation.com can assist you in delivering high-quality valuation reports to your clients, even if you don’t have in-house valuation staff. Finally, we include an FAQ section addressing common questions and a glossary of key terms for quick reference.
Why does this matter? In practice, business valuations underpin critical decisions for small and mid-sized businesses – from selling the company or raising capital, to estate planning and shareholder disputes. However, many business owners skip or delay formal valuations, which can lead to costly mistakes. For example, one case cited by a wealth planner described an owner who thought his business was worth $4 million, only to find through a proper valuation it was actually closer to $40 millioncnb.comcnb.com. Clearly, accurate valuation matters. As a CPA, expanding your competency in valuations not only serves your clients better but also differentiates your practice. Let’s dive into the fundamentals and advanced insights of Business Valuation from a CPA’s perspective.
A Business Valuation is a process of determining the economic value of an entire business or a company unit. In simple terms, it asks: “How much is this business worth?” The valuation result can be expressed as a single number or a range, and it’s based on an analysis of the company’s financial information, assets, liabilities, industry conditions, and many other factors. An independent, well-documented valuation provides an objective foundation for making sound financial decisions about the business.
Why are valuations so important? Business owners often have much of their personal wealth tied up in their company. Obtaining an accurate valuation is vital for major transactions and planning. For instance, if an owner is preparing to sell their business, a detailed third-party valuation can reveal the true worth and even identify ways to enhance value before salecnb.com. In one example, a superficial appraisal valued a certain business far too low, whereas a thorough valuation uncovered assets (like valuable timber on land) that boosted the value dramaticallycnb.comcnb.com. Without a proper valuation, an owner might sell for far less than they deserve or make poor strategic choices. Moreover, when transferring a business to family or doing estate planning, an independent valuation can defend against IRS challenges by substantiating that the price or value used is faircnb.com. In short, a Business Valuation provides an objective measure of value that protects all parties involved and ensures compliance with financial and tax regulations.
Some of the key reasons business valuations matter include:
Informed Decision-Making: Whether considering a merger, acquisition, or sale, knowing the fair value of the business guides negotiations and deal structuringlutz.us. It prevents owners from undervaluing their life’s work or scaring off buyers with an inflated price.
Strategic Planning: Valuations illuminate the drivers of business value (cash flow, risk factors, asset values, growth prospects). Owners and their advisors (like CPAs) can use this insight to improve business performance or address weaknesses. For example, a valuation might highlight declining margins or over-reliance on a few customers, signaling areas for improvement.
Financing and Credit: Banks and investors often require valuations for loan approvals or capital raises. For instance, the U.S. Small Business Administration (SBA) may require an independent appraisal for certain business loans, especially if loan proceeds will be used to buy a business. Lenders want assurance that the business is worth at least the loan amount (serving as collateral)lutz.us.
Estate and Succession Planning: In succession or estate planning, valuations allow owners to plan for retirement or wealth transfer. An owner might be deciding how to gift shares to children or bring in a successor; a formal valuation ensures those transfers are done at a fair price and helps calculate any gift or estate tax liabilitieslutz.us. Notably, valuations are crucial for defending the values used in estate tax filings to avoid IRS disputescnb.comcnb.com.
Litigation and Dispute Resolution: During divorce, shareholder disputes, or legal fights, the value of a business interest can be hotly contested. A CPA or valuation expert’s appraisal provides a credible basis for court cases or settlements, whether dividing assets in a divorce or compensating a dissenting shareholder. Courts and attorneys rely on well-supported valuations to ensure fairness in such situationslutz.us.
Despite these critical needs, many small business owners overlook regular valuations. Surveys by the Exit Planning Institute found that while about two-thirds of owners identify getting full value for their business as a top priority for retirement or exit, fewer than 40% had a formal valuation conducted in the last three yearstransworldma.com. In fact, many owners never obtain a valuation until a triggering event (like an unsolicited offer or health issue) forces their hand. This gap presents an opportunity for proactive CPAs to add value: by educating clients on the importance of periodic valuations and offering services to facilitate those valuations, you help clients avoid unpleasant surprises and seize opportunities at the right time.
For CPAs advising small and mid-sized businesses, the message is clear: understanding Business Valuation is no longer optional; it’s a necessary part of being a well-rounded financial advisor. In the next sections, we’ll explore how CPAs fit into the valuation landscape, the standard methods used to value a business, and how you can deliver valuation services effectively (even if you’re not a valuation expert yourself) through collaboration or outsourcing.
As a CPA, you bring a unique skill set to the table: deep knowledge of financial statements, tax implications, and business operations. This makes you a natural confidant for business owners facing big decisions. Increasingly, CPAs are expanding their roles from traditional accounting and tax compliance into advisory services, including business valuations. Here’s how CPAs typically engage in the valuation arena:
Trusted Advisor: Often, the CPA is the first person a business owner turns to when considering selling the business or buying another, negotiating a partner buyout, or planning for retirement. You may not always perform the valuation yourself, but you identify the need and guide the client on next steps. Your involvement gives the client comfort that the process will be handled professionally and objectivelysimplybusinessvaluation.com.
Financial Expert and Analyst: If you have specialized training or certification in valuation, you might personally undertake the valuation engagement. The American Institute of CPAs offers the Accredited in Business Valuation (ABV) credential for CPAs who demonstrate expertise in valuation, and many CPAs have earned itsimplybusinessvaluation.com. Likewise, the National Association of Certified Valuators and Analysts (NACVA) offers the Certified Valuation Analyst (CVA) designation, which is open to CPAs and other professionals. These credentials signal rigorous training and competence in valuation techniquesbizworth.com. A CPA who holds an ABV or CVA is well-equipped to produce a credible valuation report and is bound by professional standards in doing so.
Collaborator/Outsourcer: Not all accounting firms have in-house valuation specialists, especially smaller CPA firms. Yet they can still meet clients’ valuation needs by partnering with specialized valuation firms. This is often done in a “white-label” or referral capacitysimplybusinessvaluation.com. In such cases, you as the CPA remain the client’s primary contact, gathering data and liaising with the valuation expert in the background. The advantage is a seamless experience for the client – they feel the CPA “took care of it,” while behind the scenes a valuation pro did the heavy liftingsimplybusinessvaluation.com. We will discuss white-label services in depth later.
Reviewer and Interpreter: When an external valuation report is obtained (say your client directly engaged an appraiser, or perhaps for legal purposes an independent expert provided a value), the CPA often helps review and interpret the valuation for the client. You might check the assumptions, ensure the valuation’s logic is sound, and translate the conclusions into actionable advice. You also ensure the valuation complies with relevant standards if it’s to be used for financial reporting or tax – for instance, ensuring it adheres to IRS guidelines in an estate valuation or GAAP requirements in a purchase price allocation.
Standards and Compliance Gatekeeper: CPAs are bound by professional standards that extend to valuation services. The AICPA’s Statement on Standards for Valuation Services No. 1 (SSVS 1) outlines the minimum procedures and reporting requirements for members performing valuation engagements. In fact, any CPA who is engaged to estimate value must follow these standards, even if valuation is not their primary practice areathetaxadviser.comthetaxadviser.com. SSVS recognizes two types of engagements – a valuation engagement (resulting in a conclusion of value) and a calculation engagement (resulting in a calculated value) – which we will explain laterthetaxadviser.com. Adhering to SSVS ensures your valuation work (or that of any expert you engage) is defensible and credible. It also means your work papers and reports meet a quality benchmark. CPAs, by training, document their analysis thoroughly and act with objectivity, which gives additional assurance to the valuation processsimplybusinessvaluation.comsimplybusinessvaluation.com.
Ethical and Objective Approach: The CPA profession’s emphasis on ethics, independence, and due care carries into valuation practice. Clients may implicitly trust a valuation more if they know their CPA was involved, because they expect you to uphold integrity. For example, a business owner might have unrealistic expectations of value; a CPA advisor can act as a voice of reason, ensuring the valuation isn’t artificially inflated to please the client – a risk if someone unqualified tried a DIY valuation or if an unscrupulous “yes-man” provided onesimplybusinessvaluation.com. Your presence helps keep the valuation honest and grounded in facts.
In summary, CPAs are often the linchpin of the Business Valuation process for small and mid-sized businesses. Whether you directly perform valuations or coordinate them, your financial acumen and trusted reputation position you to ensure clients get valuations that are accurate, compliant, and useful for their intended purpose. It’s no wonder that many CPA firms – even smaller ones – are finding ways to integrate valuation services, either by training their staff (e.g., obtaining ABV credentials) or by aligning with third-party valuation providers. In the next section, we’ll break down the core valuation approaches and methods every CPA should know, as understanding these is fundamental to either performing or assessing any valuation.
Business Valuation is both an art and a science. Over many decades, practitioners have developed standard approaches to valuation that provide a structured way to derive a company’s value. The three widely recognized approaches are the Asset Approach, the Income Approach, and the Market Approachmeadenmoore.com. Each approach looks at the business from a different angle, and within each approach there are various methods. A competent valuation will often consider multiple approaches to cross-check results and ensure the conclusion makes sense from more than one perspectivecbiz.comcbiz.com. Here’s an overview of each approach and when it’s used:
The Asset Approach determines the value of a business by looking at its net assets – essentially, valuing the company’s individual assets and liabilities one by one, and calculating the difference. In principle, it asks: “What would it cost to recreate this business from scratch (buying all its assets and assuming its liabilities)?” or “What could we get by selling off all assets and paying off debts?”.
Formally, the asset approach is defined as “a general way of determining a value indication of a business, business ownership interest, or security using one or more methods based on a summation of the values of the assets net of liabilities, with each asset and liability valued appropriately.” In other words, the value of the business is the aggregated value of its partscbiz.com. Under this approach, an appraiser will adjust the company’s balance sheet from book values to market values. Tangible assets (like equipment, inventory, real estate) might be appraised individually. Intangible assets (like patents or trademarks) are considered if they have separable value. Liabilities are subtracted at their payoff amountssimplybusinessvaluation.comsimplybusinessvaluation.com.
Common methods under the asset approach include:
Adjusted Net Asset Value (NAV): Also called the Adjusted Book Value method. The appraiser starts with the company’s book value (assets minus liabilities per the balance sheet) and adjusts each component to reflect current fair market value. For example, if the books show equipment at a depreciated value of $100,000, but its resale market value is $300,000, the equipment is marked up. Similarly, any undervalued or unrecorded assets are added (like a fully amortized patent that still has value), and overvalued assets or contingent liabilities are adjusted down or recognized. After all adjustments, you get the net asset value at market – effectively what the shareholders’ equity would be worth if the business were liquidated or re-created todaysimplybusinessvaluation.comsimplybusinessvaluation.com.
Liquidation Value: This method asks what the business would be worth if it ceased operations and sold everything off. It typically results in a lower value because it ignores any value from ongoing operations or intangible goodwill. Liquidation can be orderly (assets sold methodically over a reasonable time to get decent prices) or forced (quick auction sale, often at bargain prices). This method is relevant for distressed situations or a worst-case scenario analysis. Lenders, for instance, might consider liquidation value to ensure their loans could be covered if the business failssimplybusinessvaluation.comsimplybusinessvaluation.com. For healthy businesses, liquidation value is usually far below going-concern value, but it sets a “floor” – the business should be worth at least more than its break-up value if it’s profitable.
When is the asset approach most useful? Typically in companies where assets drive the value more than earnings. Think of holding companies (e.g., a company that just owns real estate or marketable securities) – its value is essentially the assets’ value. Also, for very asset-intensive businesses or those not making much profit, the asset approach provides a reality check. For example, a construction company with lots of heavy equipment or a capital-intensive manufacturing firm might be valued by assets if its earnings are weakcbiz.com. On the other hand, a high-tech software company with few tangible assets but strong cash flow would not lean on this approach (its value comes from intangibles and earnings).
It’s important to note that most operating businesses (especially profitable ones) have value beyond just their assets – that extra value is called goodwill (we define this in the Glossary). Goodwill represents things like reputation, customer relationships, workforce, brand – all the intangibles that make the whole business worth more than the sum of its parts. The asset approach on a going-concern basis can capture some of that if intangible assets are valued, but often goodwill is what the other approaches (income/market) capture better.
In summary, the asset approach sets a baseline. It answers “What’s the value of what we own minus what we owe, adjusted to today’s market values?” It’s straightforward and objective in concept, but can miss the earning potential of a well-run company. That’s where the other two approaches come in.
The Income Approach values a business based on its ability to generate economic benefits (cash flows or earnings) for its owners. Essentially, this approach asks: “How much are the business’s future profits worth today?” It’s the primary method for valuing companies that are profitable, because investors value businesses on the expectation of future returnssimplybusinessvaluation.com. In finance terms, the income approach derives value by discounting or capitalizing the expected future income of the business to the present.
A formal definition: “a general way of determining a value indication of an asset, business, or investment using one or more methods that convert expected economic benefits into a single present amount.”cbiz.com In simpler terms, we project the company’s future cash flows or earnings and then translate those into what they’re worth in today’s dollars, considering the risk of achieving them.
The two most common methods in the income approach are:
Discounted Cash Flow (DCF) Method: This is a multi-period valuation model. The appraiser forecasts the business’s cash flows over several future periods (often 5 or 10 years, or sometimes until a certain event), and then applies a discount rate to those cash flows to convert them into present value todaysimplybusinessvaluation.com. The discount rate reflects the required rate of return given the riskiness of the business (often derived from models like the Capital Asset Pricing Model or using industry benchmarks). In a DCF, you typically also calculate a terminal value at the end of the projection horizon to account for all cash flows beyond that point (assuming the business continues indefinitely or is sold)simplybusinessvaluation.comsimplybusinessvaluation.com. The terminal value might be estimated using a long-term growth model or an exit multiple. Discounting each year’s projected cash flow and the terminal value back to present and summing them yields the total value of the business. The DCF method is powerful because it can accommodate detailed changes year by year – useful for businesses expecting uneven growth, undergoing expansion, or with finite life cycles. It forces analysts to deeply examine assumptions about revenue growth, profit margins, investment needs, etc. The flip side is it can be sensitive to those assumptions; small changes in forecasts or discount rate can swing the value.
Capitalized Cash Flow (CCF) Method: Also known as the capitalization of earnings method or single-period capitalization, this is essentially a simplified income approach suitable for stable businesses. Instead of projecting many years, it takes a single representative annual earnings or cash flow figure (say the current year or an average of recent years) and assumes that amount (with perhaps a modest growth rate) continues indefinitely. The value is calculated by dividing that earnings figure by a capitalization rate (cap rate). The cap rate is basically discount rate minus long-term growth rate. For example, if the business’s normalized annual cash flow is $200,000 and a reasonable cap rate is 20%, the implied value is $200,000 / 0.20 = $1,000,000simplybusinessvaluation.com. This method works well if a company’s current earnings are steady and indicative of future earnings, growing at a stable, constant rate. It’s not appropriate if the company is in a high-growth phase or volatile period – in those cases, a DCF is better. CCF is conceptually similar to valuing a perpetuity in finance. It’s often used for small businesses or those with stable histories, and it’s mathematically equivalent to DCF under certain steady-state assumptions.
Key to the income approach is selecting the right income measure (e.g. cash flow available to equity vs. to firm, earnings, etc.), the right forecast horizon, and especially the right discount or cap rate. The discount rate reflects the risk – higher risk businesses have higher discount rates which lower the present value of future cash, and vice versa. Determining this rate can involve using market data (like industry return on equity, size premium for small business, debt/equity cost for the business, etc.) or building up from general market rates plus risk adjustments. It’s a critical judgment area in valuations.
The income approach aligns well with how investors think: you pay today for the expectation of future benefits. Therefore, this approach is heavily used in valuations for investment analysis, mergers and acquisitions, and any scenario where intrinsic value based on earnings power is soughtsimplybusinessvaluation.comsimplybusinessvaluation.com. For example, if a client is considering buying a business, they essentially are buying the future cash flows, so a DCF or capitalization of earnings gives a direct estimate of what those are worth.
One advantage of the income approach is that it can be very company-specific – it uses the company’s own financial projections and doesn’t rely on market averages as much. It can capture unique plans or circumstances of the business. However, it requires reliable forecasting and sound assumptions; if a client’s projections are overly optimistic, part of our job as valuation professionals is to sanity-check and possibly adjust them to more reasonable levels.
Recap: The income approach answers, “What is the value of the future income this business will generate?” It is typically the go-to approach for operating companies with positive earnings. In practice, valuation experts often use both a DCF and a capitalization method (when applicable) as checks on each other. For instance, one might do a full DCF model and also do a simpler cap rate calculation on stabilized year earnings to ensure they are in the same ballpark.
The Market Approach derives value by comparing the subject business to other businesses that have been sold or publicly traded. It operates on the principle of substitution: given a marketplace of buyers and sellers, the value of a business can be inferred from the prices at which similar companies have exchanged hands. It’s analogous to how real estate is often valued – by looking at comparable sales (“comps”) in the neighborhood.
Definition-wise, the market approach is “a general way of estimating the value of a business (or asset) by using one or more methods that compare the subject to other businesses (or assets) that have been sold, or for which price information is available.”cbiz.com Essentially, it’s valuation by analogy.
There are a few common methods under the market approach:
Guideline Public Company Method: The appraiser identifies publicly traded companies that are similar (in industry, size, product/service, etc.) to the subject company. Since public companies have market prices (stock prices) and financial information available, one can derive valuation multiples from them – for example, the ratio of enterprise value to EBITDA (EV/EBITDA), or price to earnings (P/E), etc. These multiples represent what the market is paying for those companies’ earnings or assets. The appraiser then adjusts those multiples for differences and applies them to the subject company’s metrics. For instance, if publicly traded peers are valued at around 5 times EBITDA, and the subject company’s EBITDA is $2 million, a rough value might be 5 * $2M = $10 million (then fine-tuned for factors like growth or risk differences). This method is good when there are sufficient comparable public companies and when the subject business is of a scale that could be compared to them. It may be less useful for very small businesses or unique niche companies that don’t resemble any public firms.
Guideline Merged and Acquired Company Method (Transaction Method): Similar to above, but uses data from private company sales (M&A transactions). There are databases (such as Pratt’s Stats, BizComps, S&P Capital IQ, etc.) that record private business sale transactions, including sale price and financial metrics. An appraiser finds transactions of companies similar to the subject in terms of industry, size, etc., and derives valuation multiples from those deals (like sale price to revenue, or sale price to seller’s discretionary earnings, etc.). Those multiples are then adjusted and applied to the subject company’s figures to estimate value. For small businesses, databases like BizBuySell or surveys of business brokers might provide rule-of-thumb multiples (e.g., “auto repair shops sell for 0.4 times revenue” as a simplistic example). The transaction method directly reflects what acquirers have paid in the marketplace for comparable businesses, which can be very insightful.
Prior Transactions in the Subject’s Own Stock: If the company being valued has itself had recent sales of shares or ownership interests (especially arm’s-length transactions), those can be the best indicator of its value. For example, if 6 months ago 20% of the company sold to an investor for $500,000, that implies a company value of $2.5 million (assuming conditions haven’t drastically changed). This method is only available if such transactions exist and were arm’s-length.
Using the market approach often boils down to using valuation multiples – ratios such as Price/Earnings, EV/EBITDA, EV/Sales, or industry-specific metrics (like value per subscriber, etc., if relevant). The process involves making sure the multiples are truly comparable – often adjustments are needed. No two companies are exactly alike, so a valuation professional will consider differences in growth rates, profit margins, geographic markets, customer concentrations, etc., when picking comparables and adjusting valuationssimplybusinessvaluation.com.
For example, say the average small manufacturing firms in a database sold for 1.0 times revenue. If our subject firm has much higher profit margins or a unique product line, perhaps it deserves a higher multiple than average; if it’s riskier or smaller, maybe lower. Often, an appraiser will select a range of multiples from the data (say 0.8x to 1.2x) and then justify where the subject falls in that range based on its qualities.
The market approach is particularly useful as a reality check. Even if you primarily rely on an income approach, you might say: “Given my value conclusion, what multiples does that imply, and are those in line with what the market would pay?” For instance, if your DCF says $5 million and that equates to 10x EBITDA, but you know most similar businesses sell for 5x, you need to double-check your assumptions (maybe the company is extraordinary, or maybe the DCF overshot).
For small and mid-sized businesses, the market approach can be challenging if good data isn’t available. However, there are many industry studies and databases that can be tapped. Additionally, business brokers often use simplified market multiples or “rules of thumb” (like X times SDE) to give owners rough estimates – though these are no substitute for a thorough valuation, they reflect market sentiment to some degree.
In summary, the market approach asks, “What are businesses like this selling for?” It’s conceptually straightforward and appeals to a sense of market fairness – after all, value ultimately is what someone is willing to pay. By grounding a valuation in actual market evidence, you enhance its credibility (especially in contexts like litigation or negotiation, where the other side might ask, “why would I pay more than others have paid for similar companies?”).
Typically, a comprehensive valuation will consider all three approaches. Depending on the case, one approach may be weighted more heavily. For example, for a profitable service company with few tangible assets, the income approach might be primary, market approach secondary, and asset approach given little weight (except to ensure the value isn’t below liquidation). For a holding company, the asset approach might be primary. The valuation expert uses professional judgment to reconcile the various indications of value into a final conclusioncbiz.com.
As a CPA, you don’t necessarily need to perform all these calculations yourself (unless you’re doing the valuation), but understanding them enables you to explain results to clients and to trust the process. It also helps you identify the key drivers: for instance, if a client’s valuation came in low, you might realize it’s because their earnings were low or their multiples were depressed due to risk factors – insights you can then relay to help them improve those drivers.
When offering valuation services or coordinating them for clients, it’s important to clarify what type of valuation engagement is being performed and what kind of report the client will receive. In the context of AICPA standards (SSVS1), there are two primary types of engagements for valuing a business:
1. Valuation Engagement – Conclusion of Value: In a valuation engagement, the professional (valuation analyst) undertakes a comprehensive analysis and is free to apply any valuation approaches and methods deemed appropriate. The result is a conclusion of value, which can be either a single number or a range, expressed with the full authority of the analyst’s judgmentthetaxadviser.comthetaxadviser.com. This is considered the most in-depth service. It involves performing detailed procedures: analysis of the company’s financials, industry and economic analysis, perhaps management interviews, deriving value using multiple methods, reconciling them, etc. Because it’s comprehensive, a valuation engagement usually culminates in a thorough valuation report (written or, less commonly, oral) that documents the analysis and supports the conclusion. This is the gold-standard if the valuation is going to be relied upon for significant transactions, litigation, or IRS filings.
2. Calculation Engagement – Calculated Value: In a calculation engagement, the CPA/analyst and the client agree in advance on a limited set of procedures and methods that will be used to estimate valuethetaxadviser.com. The analyst then performs those specific calculations, without necessarily going through all the steps of a full valuation. The output is a calculated value, which can also be a single amount or a range, but it comes with the caveat that not all valuation procedures were performed. Essentially, it’s a more streamlined, cost-effective service when a full valuation isn’t needed. For instance, a client might say, “Can you do a quick valuation based on applying an EBITDA multiple that we think is reasonable?” – that could be a calculation engagement. The report for a calculation engagement is typically shorter (sometimes called a calculation report or memo). It must clearly state that it’s a calculation engagement and that a conclusion of value was not determined.
Both engagement types are acceptable under AICPA standards, as long as they are properly described and the client understands the difference. The key difference lies in scope and depth:
A valuation engagement = broader scope, more thorough, you choose methods after full analysis, you give a conclusion of value with more confidence. Think of it as a full appraisal.
A calculation engagement = narrower scope, agreed-upon approach (like only using one method or limited analysis), results in a calculated value. It’s more of an advisory estimate with limitations.
Why would one choose a calculation engagement? Primarily for cost or time savings when the situation doesn’t warrant a full valuation. Perhaps the client only needs a ballpark figure for internal planning, or the situation is such that they want to save on fees and are comfortable with an approximation (with the trade-off that it might not hold up to intense scrutiny). As a CPA, you might perform a calculation engagement if a client asks, “Can you help me estimate what my business might be worth if I retire in 5 years?” and you decide to apply a simplified method just for planning.
However, if the purpose is more critical (like gift tax filing, shareholder buyout, or divorce proceeding), a valuation engagement is generally preferred or required, because it’s defensible and follows all the steps expected by courts or the IRS.
It’s important to document what type of engagement you’re doing in your engagement letter and report. If a calculation engagement, state that the client agreed to the procedures and that it’s not a full valuation – this manages expectations and liability.
Beyond these SSVS-defined engagement types, in practice you might hear other terms for different levels of service:
Broker’s Opinion or Pricing Analysis: Often used by business brokers, not as comprehensive as a formal valuation. More like using some market rules of thumb to suggest an asking price range.
Consulting report or Preliminary valuation: Some valuation analysts provide a less formal analysis (maybe in a slide deck or short memo) as a consulting project, especially if the client just wants a quick sense of value before deciding to do something. These might not adhere strictly to all of SSVS reporting guidelines (if not used for a formal purpose, although technically SSVS still applies if you are engaged to estimate value).
Appraisal Report (USPAP-compliant): If you work with non-CPA appraisers, they might follow USPAP (Uniform Standards of Professional Appraisal Practice) and issue an appraisal report, which in concept is similar to a valuation engagement report, just under a different set of professional standards (commonly used by certified appraisers like ASA, etc.).
For CPAs, it’s worth noting that whichever format, we should always maintain workpapers and documentation to support our valuation, because our professional standards and potential legal challenges demand it.
When using or reviewing a third-party’s valuation, understanding these differences helps you explain to your client why one valuation report might look different from another, or why cost varies. A $500 “valuation” that some online service offers might really be a calculation engagement with a template, whereas a $5,000 (or much higher) fee might be for a full valuation engagement by a credentialed expert with a 50-page report.
At SimplyBusinessValuation.com, for instance, the service offered is a comprehensive valuation engagement – they deliver a 50+ page detailed report with a conclusion of value, suitable for most purposes, and it’s prepared by certified appraiserssimplybusinessvaluation.com. Despite being thorough, they’ve streamlined the process to offer it at an affordable flat fee, which is part of the value proposition (more on that later). They also provide that report in an editable format (Word document) as part of their white-label offering, so CPAs can make minor adjustments or add branding before presenting to clients.
In summary, CPAs should tailor the type of valuation service to the client’s needs:
Full valuation engagement & report when the situation calls for rigor.
Limited calculation or estimate when it suffices for the purpose (and client accepts the limitations).
Always communicate which is being done to avoid misunderstandings.
Next, we will look at common situations where clients need valuations, which often dictates which type of engagement and depth is appropriate.
Business valuations can come into play in a wide range of scenarios in the lifecycle of a business. As a CPA advising small and mid-sized businesses, you’ll encounter many of these situations. Recognizing them helps you be proactive in recommending a valuation at the right time. Here are some of the most common reasons a Business Valuation might be needed:
Buying or Selling a Business (Mergers & Acquisitions): Perhaps the most obvious case – when an owner plans to sell their business or an entrepreneur wants to acquire one, determining a fair price is crucial. A valuation provides an objective starting point for negotiationslutz.us. It can prevent owners from underselling their company or overpaying for a target. Valuations for M&A consider synergies too; for instance, a strategic buyer might pay more due to cost savings or market expansion opportunities, but the baseline is understanding standalone fair market value. CPAs often help clients prep for sale by doing a valuation 1-2 years in advance, which can highlight areas to improve (clean up financials, boost earnings) to maximize sale valuetransworldma.com.
Raising Capital or Bringing in Investors: If a business is seeking outside investment (venture capital, private equity, or even a minority partner), the valuation determines how much equity the investor gets for their money. For example, if an investor puts in $500,000 on a $2 million pre-money valuation, they’ll get 20% of the company post-money. Startups often go through valuations for funding rounds (though early-stage ones might be very high-level). Established small businesses bringing in a new partner or investor will need a valuation so everyone agrees on the stake’s worth. CPAs might be asked to provide projections or financial analysis that feed into these valuations.
Bank Financing (Loan Applications): For significant business loans, especially SBA loans, lenders may require a business appraisal if the loan is to finance a change in ownership. The SBA’s Standard Operating Procedures actually mandate an independent Business Valuation for certain loans (like if the loan is over a certain amount and funding a partnership buyout or business purchase). They require that the valuation be done by a “qualified source” (often meaning credentialed appraiser) and recognize certifications like ABV, ASA, CVA as qualifiedsimplybusinessvaluation.comsimplybusinessvaluation.com. So, if your client is going for an SBA 7(a) loan to buy a company, an outside valuation will likely be needed. Even for asset-based loans, the lender might ask for an appraisal of the business assets or an overall valuation if the business’s cash flow is part of the credit decision. As a CPA, you might need to help gather the info for such appraisals or discuss the results with the bank.
Estate and Gift Tax Planning: When business ownership is transferred as part of an estate or given as a gift (say parents transferring shares to children), the IRS requires that the value of those interests be reported at fair market value at the date of transfer. A formal valuation (meeting IRS Rev. Ruling 59-60 guidelines, etc.) is crucial to withstand potential IRS scrutiny. Often, appraisers will apply discounts for lack of marketability or minority interest if less than 100% is being transferred, which can significantly reduce tax value – those discounts must be well supported by a valuation reportsimplybusinessvaluation.comsimplybusinessvaluation.com. Succession planning frequently involves periodic valuations to gradually hand off the business. CPAs working in estate planning teams will use valuations to ensure estate freezes, family limited partnerships, and gifting strategies are done at defensible values. Note: the IRS can challenge valuations it sees as too low (to increase gift/estate tax). A strong valuation helps defend against IRS challenges, avoiding hefty penaltiescnb.com.
Buy-Sell Agreements: Businesses with multiple owners often have buy-sell agreements that dictate what happens if an owner leaves, passes away, or there’s a dispute. These agreements typically have a mechanism for valuing the ownership interest – some use a formula (which might become outdated), others call for a professional appraisal at the time of the event. Having a valuation done periodically or at the triggering event is necessary to set the price for the stock buyback or sale between partners. A CPA may be involved in setting up the valuation terms in the agreement (e.g., deciding on an agreed formula or stipulating a process like each side hiring a valuator and reconciling). Ensuring the valuation is fair prevents fights – nothing strains relationships like arguing over what the business is worth when someone’s exiting. Sadly, many buy-sell agreements are poorly drafted and lead to disputes; a CPA can add value by encouraging clients to get a formal valuation update regularly or at least agree on a method that reflects market reality.
Financial Reporting (GAAP purposes): Though more relevant for larger private companies or public companies, valuations are needed for certain accounting requirements. For example, purchase price allocation in a business acquisition (valuing intangible assets and goodwill for the balance sheet), impairment testing of goodwill and other intangibles, stock option (409A) valuations for granting stock options in startups, etc. If you have clients that need these, they’ll often turn to valuation specialists. Even a mid-sized private company might need a 409A valuation to issue options to employees to comply with IRS and accounting rules. CPAs in industry (like a controller or CFO at a client company) might coordinate these valuations and ensure they meet standards.
Litigation & Divorce: If your client (or their business) is involved in litigation, a valuation might be necessary. Common examples: marital divorce where the business is an asset to be divided – each spouse might hire experts to value the business. Shareholder oppression or dissenters’ rights cases where a minority shareholder who is squeezed out is legally entitled to “fair value” for their shares – valuations become battle reports in court. Partnership disputes, damage cases (like someone harmed the business and you need to quantify losses, which involves valuing the business before/after). In these situations, valuations must often be extremely detailed, and the expert may need to testify. As a CPA, if you are accredited in valuation, you might serve as an expert witness. If not, you might help the legal team by providing records, explaining financials to the valuation expert, or reviewing the opposing expert’s report for reasonableness. It’s high-stakes because the outcomes ride on these numbers.
Insurance and Buy-Out Planning: Sometimes companies want a valuation for insurance purposes, such as setting the right amount of key person life insurance or business interruption coverage. Or an owner might want a baseline valuation to ensure their life insurance is enough for their family to pay off estate taxes. These are less formal uses but still valid.
Internal Planning & Benchmarking: An owner may simply want to track the value of their business over time, like how one tracks a stock portfolio. A valuation every couple of years can serve as a scorecard of performance beyond just revenue or profit – it encapsulates all factors (market conditions, risk, etc.) into one bottom line. It can also be motivational for management if they have equity or incentives tied to increasing the company’s value.
Rollovers for Retirement Plans (401(k) Business Financing): There’s a specific case where individuals use retirement funds to buy a business (ROBS – Rollovers as Business Startups). Those require a valuation of the business for the IRS and Department of Labor compliance, typically annually. Small business valuations are needed to justify the share price of the C-corp that the 401k plan invests insimplybusinessvaluation.com (this was referenced on simplybusinessvaluation’s site regarding 401(k) rollovers).
The list goes on, but the takeaway is valuations are ubiquitous in business life events. A CPA who is aware of these triggers can advise clients appropriately. For instance, if your client mentions they’re thinking of giving some shares to their kids, you should prompt: “We’ll need a valuation for gift tax – let’s plan ahead.” Or if they say “I got an offer from a competitor to buy my company,” you might say: “Before jumping in, let’s get an independent valuation so you have a benchmark in negotiations.”
One more angle to consider: many business owners have unrealistic expectations – studies and anecdotes show that owners often overestimate their business’s value (some say as many as 80%+ of owners do)linkedin.comtransworldma.com. As a result, when it comes time to sell, they may face a harsh reality check. A CPA can gently ground their expectations by pointing to objective valuation principles or suggesting a professional valuation well before a sale is imminent. This can prevent disappointment and also guide them on how to increase their business’s value in the eyes of buyers (by improving those value drivers like earnings quality, diversified customer base, etc., which a valuation would highlight).
In summary, be alert to the many scenarios requiring valuation, and use them as opportunities to provide value-added service. You become not just the tax preparer or auditor, but a strategic advisor who shepherds the client through major financial milestones with expert guidance. This elevates your client relationship and can also generate additional consulting revenue for your practice.
Given that business valuations are important and in demand, why doesn’t every CPA firm offer this service seamlessly? The reality is, developing and delivering valuation services can be challenging for accounting firms. Here are some common hurdles and considerations:
Specialized Knowledge and Accreditation: Valuation is a distinct discipline. While it builds on core financial analysis skills, it also involves specialized theories (like cost of capital calculation, discount for lack of marketability studies, etc.), as well as staying current with evolving methodologies, judicial precedence, and IRS rulings (e.g., how tax court views certain discounts). To credibly provide valuations, a CPA often needs additional training or credentials (ABV, CVA, ASA, etc.). Gaining these isn’t trivial – it means dedicating time to study, taking exams, and fulfilling experience requirements. Not every firm can spare staff to do this, especially when accounting/tax workloads are heavy. Without credentials, it can also be harder to market the service or defend your valuation in contentious settings. In short, mastering Business Valuation takes commitmentsimplybusinessvaluation.comsimplybusinessvaluation.com.
Experience Curve: Even after getting training, there’s a learning curve to doing valuations efficiently and correctly. Each industry has quirks in valuation, each type of engagement (e.g., litigation vs sale) may emphasize different things. Mistakes or oversights can be costly (a flawed valuation might lead a client to misprice their business or get challenged in court). Many CPAs lack real-world valuation experience, and it can be risky to “learn on the job” with a live client’s matter.
Time Intensity and Tools: A thorough valuation engagement can be time-consuming. It involves gathering lots of data (financial statements, operational data, economic outlook, comparables), analyzing it, writing a comprehensive report, and undergoing reviews (including quality control if following AICPA’s SSVS and potentially internal peer review). It often requires specialized tools or databases – for example, accessing databases of private transactions or public comps, and software for report writing or modeling. These resources can be expensive (subscription fees) and need a certain volume of work to justify. For a CPA firm that only occasionally does valuations, maintaining these tools might not be cost-effective.
Regulatory and Legal Risk: Valuations can be subject to scrutiny by third parties – IRS, courts, opposing counsel, banks, etc. For a CPA, issuing a valuation report means taking on potential liability if the work is challenged. SSVS compliance is a must, but even beyond, you have to be ready to defend your assumptions and judgment calls. Some CPAs worry about the litigation risk of doing valuations, especially in fractious situations like divorces or shareholder disputes. It can also affect malpractice insurance costs. Thus, some would prefer not to wade into that unless they specialize in it.
Resource Allocation: Running a valuation practice within a CPA firm means dedicating resources (staff, time, money) to something that might not have steady demand year-round like tax or audit. One challenge is utilization – if you hire a full-time valuation expert, do you have enough valuation projects to keep them busy and cover their compensation? Perhaps not, if your client base only needs a few valuations a year. Some firms solve this by having their valuation experts also do other work (like forensic accounting or consulting), but juggling roles can be tough. The firm leadership might hesitate to invest in building a valuation niche if they’re unsure of the ROI.
Data Gathering from Clients: A practical issue – small business clients often have less-than-perfect financial records or may be confused about why you need detailed info for a valuation. Explaining why you need five years of financials, adjusting entries, customer breakdowns, etc., can be an extra effort. CPAs already dealing with clients’ books will know that sometimes even getting clean financial statements is a challenge, let alone discussing things like normalized earnings or industry outlook with a perhaps unsophisticated client. So, performing valuations can involve a lot of client education and hand-holding through the process.
Keeping Up with Standards and Best Practices: The world of valuation isn’t static. There are continuing education requirements for credentials, new research (for instance, new approaches to calculating marketability discounts or updated life expectancy tables, etc.), and periodic updates to standards. For example, the AICPA’s SSVS was introduced in 2007 and could be updated; or the Appraisal Foundation might issue new advisories. If valuations are not your main focus, it’s easy to fall behind on these developments, which could result in using outdated methods.
Independence Concerns: If you are performing valuations for a client for whom you also do audits or certain attest services, you need to consider independence rules. Providing valuation services (which might be considered a consulting service) could impair independence for audit purposes if not handled carefully. Many CPA firms navigate this by not doing valuations for audit clients or by structuring it as a separate service line, but it’s a consideration if your firm does attest work.
Pricing Pressure and Competition: Valuation services can be expensive to provide (given the labor and expertise), so you need to charge fees that justify the work. However, clients often don’t understand the complexity and may balk at fees. They might compare a rigorous valuation quote of, say, $8,000 with some online calculator or a competitor offering $2,000 and not see why the difference. There’s also competition from dedicated valuation firms and even software/automated valuation tools for simpler needs. CPAs have to articulate the value of their service (e.g., “this is a 50-page report signed by an expert, it will hold up to IRS or court scrutiny, etc.”). Otherwise, clients may go for a cheaper but lower-quality option and potentially get a subpar result.
Focus and Distraction: From the firm’s perspective, focusing on core services (tax, audit) is what they know best. Venturing into valuation could distract partners and staff from their main profit centers. It requires business development in new networks (lawyers, business brokers, etc., for referrals). Some firms fear stretching themselves thin or diluting their brand if they can’t do valuations at the same top-notch quality as their other services.
These challenges might make it sound daunting to offer valuation services – and indeed, for many small CPA practices, it’s easier to team up with an external specialist than to build in-house capability. This is where the concept of white-label valuation services becomes attractive. Instead of tackling all these hurdles alone, a CPA firm can leverage a partner who has already solved them – they have the expertise, process, and efficiency to do valuations, and the CPA can still deliver the result to the client as if it were their own service.
In the next section, we’ll explore exactly that: what white-label Business Valuation services are and how they can be a game-changer for CPAs looking to offer valuations without the headaches of developing full in-house capacity. Overcoming the above challenges is possible with the right approach, and doing so can unlock a valuable revenue stream and client retention tool for your practice.
White-labeling means using a third-party service that allows you to put your own brand on the final product. In context of business valuations, a white-label valuation service is one where a specialized valuation firm performs the valuation (often behind the scenes), and you, the CPA, deliver the results to your client under your firm’s branding. To the client, it appears as though your firm provided the valuation expertise, whereas you have actually outsourced the technical heavy lifting to valuation experts. This model has grown in popularity among CPA firms and financial advisors, and for good reason – it addresses many of the challenges we discussed while letting you expand your service offerings.
Here’s why white-label valuation services can be a game-changer for CPAs:
Instant Expertise Without the Investment: By partnering with a reputable valuation provider, you gain access to their team of credentialed valuation experts. You don’t have to hire your own full-time valuation specialist or train up staff over years. The provider likely has ASA, CVA, ABV or similarly qualified professionals who eat-sleep-breathe valuations. This means your clients’ valuations are done by people who have deep experience and up-to-date knowledge – all without you bearing the cost of building that team.
Broader Service Offering Under Your Brand: With white-label, you can say “Yes” when a client asks for a valuation, rather than referring them out (and possibly losing them to another firm). You effectively offer more services, making your practice a one-stop shop for your clients’ financial needssimplybusinessvaluation.comsimplybusinessvaluation.com. The valuation reports can carry your firm’s logo and branding (if the provider allows), so it reinforces your brand as comprehensive advisors. This helps especially in client retention – you don’t have to send them away to a competitor for valuations.
Maintained Client Relationship: In a white-label arrangement, typically the CPA remains the primary point of contact for the clientsimplybusinessvaluation.com. You collect data from the client, you might communicate questions from the valuators, and you deliver the final report. The client’s trust in you is maintained. They get a seamless experience – it feels like your firm just handled it allsimplybusinessvaluation.com. Meanwhile, behind the scenes, the valuation firm does the analysis. This is a big advantage over just giving a referral; when referring out, you lose control and maybe even the client’s mindshare. White-label keeps you in the driver’s seat of the relationship.
Efficiency and Quick Turnaround: Dedicated valuation firms often have refined processes to deliver reports quickly. For instance, SimplyBusinessValuation.com advertises prompt delivery of detailed reports within 5 business dayssimplybusinessvaluation.com. That speed might be hard to match if you’re doing it in-house sporadically. Quick turnaround pleases clients – they get results fast, which is especially useful if a decision (like a potential offer or filing deadline) is time-sensitive.
Cost-Effective and Scalable: Instead of incurring overhead for occasional valuations, you typically pay the white-label provider per engagement (usually at a wholesale or discounted rate for advisors). For example, SimplyBusinessValuation.com offers a flat fee (they mention $399 per valuation report on their site)simplybusinessvaluation.com. As a CPA, you could mark this up or bundle it in your advisory fee to the client. Because the fee is flat and affordable, even small-business clients can get a professional valuation without breaking the bank. Also, you can scale up usage as needed: whether you have 1 valuation this quarter or 10 next quarter, you’re not worrying about staffing – the provider handles it. Some providers even have CPA partnership programs with special pricing or volume discounts, effectively a CPA discount on their services to encourage you to bring clients to them.
High-Quality, Comprehensive Reports: White-label services (at least the good ones) deliver reports that meet professional standards and can be used for intended purposes confidently. For instance, the reports might be 50+ pages, customized, and signed by accredited appraiserssimplybusinessvaluation.com. They include all the requisite analysis, exhibits, and documentation. As a CPA, you can review the report draft, ask questions, and be comfortable with what you’ll present to the client. Knowing that the valuation is done by an expert and passes muster gives you peace of mind. In many cases, the provider will stand by their work (some even have satisfaction guarantees or will defend their valuation if challenged).
White-Label Customization: Typically, you’ll be able to add your branding to the report – for example, your logo, maybe a cover letter on your letterhead, etc. Some providers send the final report in Word format so you can tweak formatting or add commentary. This way, the deliverable is consistent with your firm’s look and feel, enhancing the sense that it’s your offering. Some CPA firms will disclose that an outside firm assisted (especially if needed for transparency), others might not explicitly mention it – that can depend on ethical considerations or client expectations. But importantly, the analysis is done objectively by the third-party, so if there’s ever a question, it was performed by qualified appraisers (which you could disclose as “our valuation team”).
Focus on Core Services: By outsourcing the complex parts, you free up your time and that of your staff. You’re not bogged down in building DCF models or researching comparable transactions for weeks. Instead, you gather some info, perhaps answer a few clarifying questions from the provider, and then focus on your core work (tax, audit, etc.) while the valuation is being done. It’s a way of leveraging your time. You still add value by facilitating and by interpreting the results for your client – for instance, once the valuation comes back, you might sit with the client to discuss how to improve value or how to use this information in their next steps.
Avoiding Internal Conflicts or Compliance Issues: Using an external provider to do the valuation can, in certain cases, also help with independence issues. If the client needs a valuation for, say, a transaction and you’re also the auditor, having the valuation done by an outside party (even if through you) might be better from an independence standpoint (versus you doing it internally, which might impair audit independence). Also, if something goes wrong or is challenged, the provider typically has their own professional liability coverage. Reputable white-label providers will carry insurance and take on the risk of their work, which might add a layer of protection for you (though you should not assume it absolves you completely – you are delivering the result to the client, so you still need to review for reasonableness).
Education and Support: Many white-label services don’t just churn out a report; they often provide support to the CPA. For example, they might walk you through the valuation results, so you fully understand it before meeting your client. Some may even join calls (with or without revealing their identity) if there are tough questions, or provide additional data to back assumptions if needed for IRS or bank. Essentially, they become an expert partner on call. Over time, you can learn from them too, increasing your own comfort with valuation concepts.
How does the process typically work? Generally, it goes like this:
You identify the client’s need for a valuation (and sell them on the idea/value of doing it).
You engage with a white-label provider. Often they’ll have an information request checklist or form. For instance, SimplyBusinessValuation has an information form and secure upload on their sitesimplybusinessvaluation.com, which presumably covers collecting financial statements, company info, etc.
You gather the required documents from your client (financials, company history, etc.) – you likely have much of it already if you’re their CPA. You pass this to the valuation team.
The valuation firm does the analysis. They might contact you with questions (e.g., “were last year’s financials an anomaly? Any one-time expenses to adjust?”). You coordinate replies, possibly asking the client or using your knowledge of their books.
Within the agreed turnaround (say 5 business days), the valuation firm provides a draft report. You review it. Check that all details seem accurate (e.g., sometimes as the CPA you might catch that an adjusted earnings figure missed adding back a personal expense – you can correct such things because you know the client’s finances well).
Once satisfied, the final report is issued. It may come with your logo or you add it. You then present it to the client – maybe via a meeting or a cover letter explaining key findings. Since you’re well-versed in the client’s situation, you can highlight what matters: for example, “Your business is valued at $2.2 million, primarily based on a 4.5x multiple of your EBITDA. This reflects your strong cash flows but also considers a discount for your customer concentration. If you diversify your customer base, that multiple could improve over time.”
The client pays you for the engagement (and you pay the provider their fee). Everyone’s happy: the client got a professional valuation efficiently; you deepened your role as a trusted advisor; the provider got a referral and fee for their work.
Providers like SimplyBusinessValuation.com even emphasize that their service is risk-free with no upfront payment and satisfaction guaranteessimplybusinessvaluation.com. This reduces the hesitation to try them out. They specifically mention being affordable (flat $399) and delivering a comprehensive report in 5 dayssimplybusinessvaluation.com, which is very appealing for small-business contexts. They also offer a white-label option for CPAs, meaning you can use their valuation in the background and present to your client confidently as part of your offeringsimplybusinessvaluation.com. These features align exactly with what we’d want in a white-label partner.
Another subtle benefit: using a white-label service can be a way to test the waters of the valuation business for your firm. If you see a growing demand among your clients and find yourselves ordering many valuations, it might later justify building an in-house team or a dedicated practice area. Or you may continue with the partnership model indefinitely, which is fine too. There’s flexibility.
Important Considerations: When choosing a white-label valuation provider, do due diligence:
Check their credentials and experience (are their appraisers certified? How many valuations have they done? Any special industry expertise?).
Ask for a sample report to ensure it meets your quality expectations.
Understand the confidentiality and non-compete aspect: a good white-label partner will not poach your client or publicize that they did the work. Typically, they’ll have confidentiality agreements and perhaps even appear as part of your team if needed. Trust is key.
Ensure clarity on pricing and scope: know what the fee includes (e.g., number of scenarios, whether they will handle follow-up questions, etc.).
Ensure they align with the standards needed (will their valuation hold up to IRS if it’s for tax, etc.? Are they familiar with the relevant standard of value required, like fair market value vs strategic value, and will they document appropriately?).
From the content on SimplyBusinessValuation.com’s blog, they highlight many of these points: CPAs can expand offerings, maintain brand consistency, avoid the headache of building in-house, and rely on a partner focused solely on valuation to maintain qualitysimplybusinessvaluation.comsimplybusinessvaluation.com. They present white-labeling as an “infinitely more attractive avenue” than building your own valuation department from scratchsimplybusinessvaluation.com. That sentiment resonates with what we’ve outlined.
In conclusion, white-label valuation services create a win-win-win: the client wins by getting expert valuation and staying with a trusted advisor; the CPA wins by broadening services and strengthening client relationships without huge investment; the valuation provider wins by leveraging their capacity through partners. It’s a modern solution that fits the collaborative spirit of today’s professional services.
Next, let’s zero in specifically on what SimplyBusinessValuation.com offers to illustrate how such a service works and how it benefits you as a CPA (and your clients).
There are several valuation service providers out there, but since this article is for simplybusinessvaluation.com, let’s discuss what makes this particular service stand out and why a CPA firm might choose to partner with them. From the information available:
Designed for Small and Mid-Sized Businesses: SimplyBusinessValuation.com specializes in valuing small and medium enterprises (SMEs). This is crucial because valuing a corner bakery or a $5M manufacturing shop requires a different approach than valuing a Fortune 500. The service is attuned to the nuances of owner-operated businesses – things like Seller’s Discretionary Earnings adjustments, owner compensation normalization, industry-specific rules of thumb – all of which are often key in small Business Valuation. By focusing on this segment, they likely have built databases and expertise most relevant to your client base. They also understand that small business owners need clear, jargon-free explanations and practical reports (not just dense theory).
Flat Fee, Affordable Pricing: At a flat fee of $399 per valuation report (as advertised)simplybusinessvaluation.com, the service is extremely affordable relative to typical valuation costs. This matters for CPAs and their clients because cost is often a barrier. A valuation from a big firm might cost $5k-$20k or more. Many small business owners hesitate at that expense unless absolutely necessary. But at $399, it’s almost a no-brainer, especially given the value and pages they deliver. It also allows CPAs to either pass that cost directly or mark it up reasonably for their own margin while still keeping the total cost to the client reasonable. Essentially, it enables main street businesses to get a professional valuation without sticker shock.
No Upfront Payment & Risk-Free Guarantee: The site mentions no upfront payment requiredsimplybusinessvaluation.com. This shows confidence in their service – they likely only charge once the report is delivered and the client is satisfied. The “risk-free service guarantee” implies if the client isn’t satisfied, perhaps they don’t have to pay or there’s some remedy. For CPAs, this is reassuring: you won’t have to convince your client to shell out money and pray the result is good; you can say “let’s try it, you pay upon completion and satisfaction.” Lower risk fosters trust.
Fast Turnaround – 5 Business Days: Time is often of the essence. SimplyBusinessValuation promises a detailed report within five working days of receiving all necessary infosimplybusinessvaluation.com. That’s a quick turnaround in the valuation world. If your client is entertaining an offer or needs a valuation for a financing package due shortly, that speed can make you look like a hero for delivering results so fast. Even if not rushed, it’s just good customer service not to keep clients waiting. Quick turnaround also means if you’re using it as part of an advisory or planning process, you can move forward faster on next steps.
Comprehensive, High-Quality Reports: They provide a customized, 50+ page valuation report, signed by expert evaluatorssimplybusinessvaluation.com. This indicates a thorough analysis, likely including an overview of the company, economic and industry analysis, explanation of methods used (income approach, market comps, etc.), calculations, and final opinion. The fact that it’s signed by their accredited appraisers gives it credibility. You could hand this report to a bank, buyer, or IRS auditor and it would stand up to scrutiny. Many inexpensive valuation services skimp on documentation, but 50 pages suggests depth.
Certified Appraisers and Credentials: SimplyBusinessValuation emphasizes certified appraisers. While they haven’t listed in the snippet which certifications, one can infer they likely have CVAs or ABVs on staff. The competency of the personnel is critical. Knowing that a report is prepared by someone who meets SBA’s “qualified source” criteria (e.g., ABV, ASA, CVA)simplybusinessvaluation.com is important if the valuation is used for lending or other official purposes. They likely adhere to SSVS and USPAP standards as applicable.
White-Label Oriented: They explicitly talk about white-label solutions for CPA firmssimplybusinessvaluation.comsimplybusinessvaluation.com. They understand not all CPAs have in-house expertise, so they market to CPAs as a support service. This means their process probably integrates smoothly with CPA intermediaries. They might provide an unbranded version of the report on request (so you can put your branding), or at least allow branding overlays. They likely also have a good understanding of the CPA-client relationship and will remain behind the scenes unless you want them to step forward. The blog content shows they position themselves as a partner rather than a competitor to CPAs.
Editable Deliverables: They provide an editable Word document version of the report in the white-label option. This is extremely handy – you can add your firm’s letterhead, perhaps add a cover letter or executive summary in your own voice, or append other analysis relevant to the client. It saves you from having to re-type or extract info if you wanted to incorporate parts into a client presentation. Basically, it’s plug-and-play for you.
Additional CPA Support: SimplyBusinessValuation.com even mentions additional support for CPAs/advisors on their sitesimplybusinessvaluation.com. This could mean they offer consultation calls, help interpret results, or even provide marketing materials to help you pitch valuations to clients. If they give things like sample engagement letters, checklists, or how-to guides for CPAs, that further simplifies your job.
White-Label Portal or Tools: Some white-label providers have a dedicated portal for advisors to submit cases and track status. The snippet [17] shows BizWorth has a Partner Dashboard for reports under your brand at discounted pricesbizworth.com – SimplyBusinessValuation might have or be developing similar capabilities, given they appear tech-savvy. Ease of use (like a single form to fill out, secure upload, etc.) is a plus.
Focus on CPA Discounts and Volume: The user’s instructions hinted at “CPA discount” and membership. It wouldn’t be surprising if simplybusinessvaluation has a program where if you are a CPA firm, you might get a special rate (maybe even lower than $399 or some referral fee). Or if you commit to certain volume, you get perks. This can make the economics even better for you as a partner. For example, you could perhaps have an arrangement where you pay a lower fixed fee and you bill the client at a higher rate that reflects your added value and time – thus monetizing the service.
Client-Friendly and Trustworthy: For your comfort, you want to ensure the provider is reputable. The site’s tone (“Risk-Free Service Guarantee”, etc.) suggests they stand by qualitysimplybusinessvaluation.com. Testimonials or references would help; the blog posts (like Elevate Your Practice) also convey a sense of thought leadership and professional knowledge, which can assure you that they know their stuff.
Coverage of Various Valuation Needs: Looking at their blog titles (e.g., 409A valuations, valuing a business with no profit, small business 401k rollovers, etc.), SimplyBusinessValuation.com seems versatile across different valuation contextssimplybusinessvaluation.comsimplybusinessvaluation.com. So whether your client needs a valuation for a startup (409A) or a no-profit scenario (maybe they have losses but need to show value), they have content about it – indicating they have methods for tricky cases too.
Editable Turnaround Time Options: They mention 3-5 days turnaround. Perhaps there are options for even faster (rush fee) or standard. In any case, it’s relatively quick.
Communication and Q&A: Since it’s a smaller-focused service, they might be quite responsive to questions. Some bigger shops churn reports but aren’t great at explaining them. Here, since they are positioning to support CPAs, they likely are ready to answer “why did you choose X multiple?” so you can answer your client.
In practice, using SimplyBusinessValuation.com could look like this: You identify a need, log on to their site, download their info form (they have one for clients to fill out, or you fill it with client data)simplybusinessvaluation.com, submit it, and within a week you get a robust report. The client might even be impressed by how efficient your firm was in delivering such a detailed analysis – enhancing your firm’s reputation.
From a marketing standpoint, you can incorporate their offering into your pitch to business clients: “We offer Business Valuation services with a typical one-week turnaround, including a comprehensive report, at a flat fee. The valuation is done by certified valuation experts as part of our extended team.” This gives even a sole practitioner CPA the aura of having a full-fledged valuation department.
Example Scenario: Imagine you have a client who is a 55-year-old owner of a manufacturing company doing $3M revenue. He’s thinking of retiring in a few years. You suggest doing a valuation now to gauge where things stand and to plan value enhancement strategies. You use SimplyBusinessValuation to get the valuation. The report comes back – let’s say it’s $1.5M value. It highlights that one of the drags on value was the customer concentration (one client is 40% of revenue, which is risky, so they applied a discount to the multiple). It also notes the gross margin is below industry average, potentially due to some outdated equipment. You sit with your client and go over the report. This opens a consulting conversation: maybe advise him to diversify his customer base or improve margins (maybe through cost analysis or equipment investment). Over the next 2 years, you work with him on these points. When he’s ready to sell, you get an updated valuation – now maybe it’s $2M, and when he lists the business, it sells smoothly because the asking price was supported by a thorough valuation and the business fundamentals had improved. The client is extremely satisfied with how you guided this process – you weren’t just a tax preparer; you were a value advisor. And you didn’t have to do the nitty-gritty of valuation calculations; you leveraged the white-label service for that.
This scenario shows how simplybusinessvaluation’s service can be an enabler for broader advisory success.
In conclusion, SimplyBusinessValuation.com offers an appealing combination of expertise, speed, affordability, and white-label convenience tailored for CPAs and financial professionals. It allows you to confidently extend valuation services to your clients, knowing you have a strong partner backing you. The benefits – from maintaining client loyalty to adding revenue to your firm – make it a compelling resource. If you’re a CPA who has ever had to turn away a client asking “Can you help me figure out what my business is worth?”, this service ensures you can now say, “Absolutely, we can handle that for you,” and do so with excellence.
If you’re considering using a service like SimplyBusinessValuation.com for your clients, here are some practical steps and best practices to integrate it smoothly into your workflow:
Establish the Partnership: First, reach out to the provider (through their website or contact info) and express interest in their CPA white-label program. In many cases, you can simply begin by using their service, but it’s good to let them know you are a CPA who intends to use it for clients. They might provide you with partner materials, a dedicated account representative, or a referral code. Ensure you understand the pricing structure – is it flat per valuation, any volume discounts, etc., and how payment is handled (do you pay, or does the client pay them directly? Typically for white-label, you pay the provider and bill the client yourself).
Gather Client Information: When you have a client in need of valuation, follow the provider’s information request checklist. For example, commonly needed items include:
Last 3-5 years of financial statements (income statements, balance sheets).
Latest interim financials for the current year.
Tax returns (sometimes helpful for small businesses).
List of non-recurring or discretionary expenses (e.g., one-time legal fees, owner’s personal expenses through the business) – as the CPA, you likely know these or can identify them.
Company details: what the business does, key products/services, breakdown of revenue by product or customer (if available), number of employees.
Any prior appraisals or offers received.
The purpose of the valuation (so the appropriate standard of value and assumptions are used).
Outlook: any projections, or at least qualitative info on whether the business is growing, stable, or declining.
The information form from simplybusinessvaluation likely prompts much of this. Work with your client to fill it out. Since clients might not know why certain info is needed, you can explain that the more accurate data we provide, the more accurate the valuation.
Secure Data Transfer: Use the provider’s secure upload or portal (SimplyBusinessValuation has a secure upload linksimplybusinessvaluation.com). This ensures confidentiality. You may want to get a non-disclosure agreement (NDA) in place between you, the provider, and possibly the client if needed, though reputable providers usually have confidentiality clauses in their terms.
Clarify the Timeline and Process: Confirm the timeline – e.g., “Once I submit everything, you will deliver the report in 5 business days.” Check if there will be interim communication. Often, after initial review, the valuation analyst might email or call with some questions or to schedule a brief interview with you or the client. Being responsive to those queries will keep things on schedule.
Keep the Client in the Loop (Optionally): Depending on your style, you might tell the client, “Our valuation team is working on the analysis, and we expect the report by X date.” Whether you mention an external firm is up to you. You could just say “we” if you consider the partner as part of your extended team. Regardless, set expectations about timing and possibly what the process entails (the client might be curious if they haven’t been through a valuation; you can let them know someone might reach out for clarifications or that you might schedule a short call with them to discuss the business operations, etc.).
Receive and Review the Draft Report: When the provider sends you the valuation report draft, review it carefully. As a CPA, you’ll understand the financial parts well – check if the financial recasting (adjustments to EBITDA or cash flow) aligns with what you know. Ensure things like owner’s salary addback, personal expenses, etc., are correctly handled. Look at the approaches used and the rationale – do they make sense given the business? If something seems off (maybe the comparables chosen are too large compared to your client’s business, or an obvious risk factor you know wasn’t addressed), discuss it with the provider. Good valuation analysts appreciate feedback; perhaps you have additional insight that could refine the valuation (e.g., “Actually, the sales dip last year was due to a one-time event; the client rebounded this year” – maybe that should be weighted differently).
Customize and Brand the Report: Once you are satisfied with the content, prepare the final deliverable for your client. If you have the editable version, insert your firm’s logo, adjust any formatting to match your style, and add any cover page or intro. Some CPAs add a letter or a one-page summary highlighting key findings in plain language. It’s also wise to attach a copy of your engagement letter to the report if that’s part of your process (or incorporate in the report) – something that outlines the scope and that this valuation is for the stated purpose, etc., to cover liability.
Deliver to Client & Explain Results: Set up a meeting (in-person or virtual) with your client to go through the valuation. This is a critical step – many clients will need interpretation, as valuation reports are detailed. As the CPA advisor, you should translate: “The business was valued at $2.2M using a couple of methods. They weighted the income approach most heavily. Let’s talk about what that means… They assumed a discount rate of X% which reflects risk factors like your customer concentration. One thing to note: they applied a 10% discount for lack of marketability, since your business is privately held and not easily sold, which is standard. If we were to improve certain factors (like making ourselves less dependent on one big client), that could reduce perceived risk and potentially increase value in the future.” By doing this, you reinforce your role as a knowledgeable consultant, and not just a messenger handing over a report. Encourage the client to ask questions. If there’s a question you can’t answer (maybe something very technical), you can offer to get back to them after checking with the valuation team.
Next Steps and Implementation: Depending on the purpose of the valuation, guide the client on next steps. If it’s for a sale, and the value is lower or higher than expected, discuss strategy (maybe they wait and grow more, or if it’s good, proceed to market). If it’s for an exit plan years out, identify the value drivers to improve and make a to-do list (here’s where you could cross-sell services like helping improve profitability, or start working on that succession plan). If it’s for a buy-sell agreement update, make sure the agreement reflects the new number. If it’s for a loan, package the report with whatever the bank needs and be ready to answer the banker’s questions (sometimes they want a short form or key points).
Billing and Payment: Coordinate the payment aspect smoothly. If you’re billing the client, ensure your invoice goes out promptly. You could either charge it as a line item “Business Valuation – $X” or embed in a larger consulting fee depending on how you value-priced it. Pay the provider their fee as agreed (some ask for credit card payment upon delivery, etc.). The difference between what you charge the client and the provider’s fee is your margin for the effort and oversight you provided – which is fair for the value you added.
Maintain Confidentiality: Be mindful of confidentiality. The client’s financials and valuation results are sensitive. With a white-label provider, you’ve shared data externally, but ensure that’s covered by confidentiality agreements. Typically, simplybusinessvaluation would not reuse or disclose client info. As the CPA, you should also not distribute the report beyond intended users (remind the client it’s confidential and for stated purpose only, with exceptions like giving to their attorney or banker if needed).
Follow Up Periodically: Valuations can become outdated as business conditions change. It’s a good practice to maybe set a reminder to follow up in a year or two: “Should we update the valuation?” This can lead to recurring engagements. Also, check in on any action items that arose (e.g., did they diversify their customer base as planned? If yes, that’s a reason to be optimistic that value is rising – maybe time for a new valuation).
Integrate into Your Services: Now that you’ve done one or a few, you can officially include “Business Valuation Services” in your service menu. Market it to other clients or prospects. You might write a blog post or newsletter for your firm’s marketing like “How much is your business worth? We can help you find out in just a week, using our professional valuation service.” Highlight that you have a team of certified valuation experts (via the partnership) and mention things like fixed fee, quick turnaround, etc., as selling points. This can attract new clients or deepen existing ones.
By following these steps, you make the process smooth and value-adding. The key is that the client feels taken care of and gets insight, you feel confident because you had professionals backing you, and the provider operates seamlessly in the background.
One more thing – quality control: Always make sure you’re comfortable with the final product before giving it to a client. Even with the best providers, errors can happen (e.g., a typo in the company name, or using an industry statistic that you know is outdated). Taking the time to review ensures nothing undermines your credibility in front of the client. As a CPA, your trained eye on the financial details is invaluable – you might catch if, say, accounts receivable was treated as collectible at 100% but you know half is bad debt, etc. Communicate any corrections to the provider; they’ll likely appreciate it and incorporate for the future.
In summary, getting started with a white-label valuation service involves a bit of setup and learning curve, but it’s pretty straightforward. After one or two cases, it will become a routine offering in your practice. The combination of your financial expertise and the provider’s valuation acumen results in a strong deliverable for the client. And each successful engagement bolsters your confidence and opens more opportunities to use valuations as part of your advisory toolkit.
Q1: What exactly is a “business valuation” and who can perform one?
A: A Business Valuation is an analysis to determine what a business is worth, considering its financial performance, assets, liabilities, industry conditions, and other factors. The goal is to arrive at an objective estimate of value (or a range of values) for the business, often expressed as a fair market value. Qualified professionals such as certified business appraisers, valuation analysts (CVA, ABV, ASA, etc.), or experienced financial consultants typically perform valuations. CPAs with specialized training (for example, those who hold the AICPA’s Accredited in Business Valuation credential) are among those qualified to perform valuationsbizworth.com. It’s important that whoever performs the valuation follows professional standards (like AICPA SSVS1 or USPAP) to ensure credibility. Using a credentialed expert is especially crucial for valuations that will be used in legal disputes, tax filings, or bank financing, as many institutions recognize those credentials as a mark of a “qualified” appraisersimplybusinessvaluation.com.
Q2: What are the common methods used in valuing a small or mid-size business?
A: There are three main approaches to valuing any business – Asset Approach, Income Approach, and Market Approachcbiz.com. Under these approaches, common methods include:
Asset Approach: Adjusted Net Asset Value (valuing individual assets and liabilities at market and netting them) and Liquidation Value (estimating proceeds if everything were sold off)cbiz.com.
Income Approach: Discounted Cash Flow (projecting future cash flows and discounting to present value) and Capitalized Earnings/Cash Flow (using a single representative earnings level divided by a capitalization rate)cbiz.comcbiz.com. These methods convert the business’s future profit potential into a present value.
Market Approach: Guideline Public Company method (comparing to similar publicly traded companies and their valuation multiples) and Guideline Transaction method (using actual sale multiples from similar private business sales)cbiz.comcbiz.com. Essentially, this approach looks at what the market has paid for similar businesses.
Most valuations will use a combination of methods. For example, an analyst might do a DCF and also look at market multiples from recent sales in the industry, then reconcile the two. The specific methods used can depend on the nature of the business and the purpose of the valuation. A small business sale often focuses on cash flow multiples (like a multiple of EBITDA or Seller’s Discretionary Earnings) as a shorthand for valueexitstrategiesgroup.comexitstrategiesgroup.com. In any case, a professional will consider multiple approaches to ensure the conclusion is well-supportedcbiz.com.
Q3: What is “Seller’s Discretionary Earnings (SDE)” and why is it used in small Business Valuation?
A: Seller’s Discretionary Earnings (SDE) is a normalized measure of a business’s earnings that is commonly used to value small, owner-operated businesses (often called “Main Street” businesses). SDE represents the total financial benefit an owner-operator derives from the business in a yearexitstrategiesgroup.com. It starts with the business’s net profit and then adds back certain expenses that are at the owner’s discretion. These typically include the owner’s salary and perks, personal expenses run through the business, and one-time or non-recurring expenses. Essentially, it’s EBITDA plus the owner’s compensation and perks for one full-time owner-operatorexitstrategiesgroup.com. SDE is used because small business financials often include personal expenses or non-essential costs that a new owner might not incur. By recasting to SDE, we get a clearer picture of the true cash flow available to an owner. Buyers of small businesses (and the brokers/valuation experts) frequently discuss price as a multiple of SDE (e.g., “this type of business sells for around 2.5 times SDE”). It’s a convenient metric for valuation in that market. Larger businesses, in contrast, use EBITDA or net income multiples, but for businesses with revenue typically under $5 million, SDE is very commonexitstrategiesgroup.com. As a CPA, helping compute SDE correctly is important – it involves adjusting financials to add back things like the owner’s health insurance, personal vehicle, etc., ensuring each adjustment truly meets the criteria of being discretionary (benefits the owner, not required for business)exitstrategiesgroup.comexitstrategiesgroup.com.
Q4: How long does it take to complete a Business Valuation?
A: The timeline can vary depending on the complexity of the business and the availability of information. For a relatively straightforward small or mid-size business with organized financials, a professional valuation might take anywhere from 1 to 3 weeks from start to finish. Some firms, like SimplyBusinessValuation.com, offer an expedited turnaround of about 5 business days once they have all necessary datasimplybusinessvaluation.com, which is quite fast. If the business operations are complex or if information is slow to be provided, it can take longer. Additionally, valuations done for litigation or very in-depth analyses might span over a few months (including time for opposing review, etc.). But for planning or transaction purposes, typically a few weeks is common. Tip: To speed up the process, ensure the client provides complete and accurate information promptly (financial statements, answers to questions about the business, etc.). Also, clarify the purpose at the outset so the analyst can focus appropriately (for example, a valuation for a divorce might need extra documentation and be more detailed than one for internal planning).
Q5: How much does a Business Valuation cost?
A: The cost of a Business Valuation can vary widely based on who’s doing it and the scope of work. Traditional valuation firms might charge anywhere from $4,000 to $20,000 (or more) for a comprehensive valuation report for a small to mid-sized business – it depends on complexity, purpose (a formal litigation support valuation might cost more), and region. However, there are affordable options now: services like SimplyBusinessValuation.com offer a flat fee of $399 for a full valuation reportsimplybusinessvaluation.com, which is a fraction of typical industry pricing. They achieve this cost efficiency through technology and specialization. Some CPA firms might do a basic calculation or consultation for an even smaller fee if it’s not a full report (like a rough estimate for a client’s planning). Conversely, top-tier consulting firms valuing a large company could charge six figures. For most small businesses though, owners should expect to invest a few thousand dollars for a quality valuation in the traditional market – but the emergence of fixed-fee online/outsourced providers is changing that. From a CPA’s perspective, if you’re reselling a white-label service, you might mark it up modestly for your time. Always discuss fees upfront with the client, and frame it against the stakes involved – e.g., “This $X valuation will help ensure you don’t underprice your business by tens of thousands in a sale or run into IRS issues on a $5M estate, so it’s well worth it.”
Q6: Will the valuation report be understandable to my client (a business owner)?
A: A good valuation report should include an executive summary and explanation in plain language of the key factors that drive the value. However, by nature, valuation reports contain technical sections – financial analysis, valuation theory, etc. CPAs can add value by walking the client through the report and highlighting the main points. SimplyBusinessValuation.com’s reports are described as comprehensive yet presumably tailored to small business contexts, likely meaning they do try to explain assumptions (for example, they might say “we applied a 15% discount rate, which reflects the risk of the industry and size of the company”). As the CPA advisor, you can further interpret those results. In the end, the client should come away understanding roughly how the value was arrived at (e.g., “my business is worth $2M which is about 4 times my annual cash flow, after adjusting for my salary, and that multiple is in line with what similar businesses sell for”). If a report is too dense, you might summarize it or focus the client on critical sections. The FAQ in some valuation reports also helps. Some providers include graphs or charts (like a pie chart of asset components or a line chart of projected cash flows) which can be very helpful visual aids for clients.
Q7: Are there different standards of value (e.g., fair market value vs. strategic value)?
A: Yes. Standard of value refers to the hypothetical conditions under which the business is being valued. The most common is Fair Market Value (FMV), which is defined as the price at which the business would change hands between a willing buyer and willing seller, with both having reasonable knowledge and neither under compulsion to actinvestopedia.cominvestopedia.com. FMV is the standard typically used for tax valuations (estate/gift) and often for general market transactions. It assumes an objective, open-market value. Another standard is Investment Value (or strategic value) which is the value to a specific buyer, incorporating synergies or the particular buyer’s motivations. For instance, a competitor might derive more value from acquiring your client’s business than a random buyer would, due to cost savings or market power – that higher value is investment value. Fair Value is a term used in certain legal contexts (like shareholder disputes) and financial reporting; its definition can vary (in financial reporting, it’s closer to an exit price, in legal it may mean pro-rata value of the business without discounts, depending on jurisdiction). When engaging a valuation, it’s important to specify the purpose so the analyst applies the correct standard. Most CPA-driven valuations for clients use fair market value unless instructed otherwise. As a note, if using a service like simplybusinessvaluation, you’d indicate the purpose, and they’d default to the appropriate standard (FMV for most). A client asking “what can I sell my business for?” is generally implying fair market value in an open sale. If a client got an offer from a particular buyer well above FMV, that’s their strategic value to that buyer. In planning, FMV is a conservative and standard measure.
Q8: The valuation came in lower than the owner expected – what can we do about it?
A: It’s not uncommon for owners to have optimistic views of their business’s worth. If a professional valuation comes in lower, first review the assumptions and make sure the valuation didn’t miss anything (CPAs can help identify if, say, the financials were not normalized properly or some valuable asset was overlooked). If it’s accurate, then the conversation shifts to value drivers. Discuss what factors dragged the value down:
Was it lower revenue or margins than peers?
High risk factors like customer concentration, key owner dependency (the owner is the business), or inconsistent earnings?
Industry slump or poor growth prospects?
Perhaps the balance sheet has high debt reducing equity value?
Once identified, the owner (with your guidance) can work on improving those factors. For example, if the business is overly dependent on the owner (they have all the key relationships), implementing a management team or systems to make the business run independently can increase value (and reduce what’s called the “key person discount”). If customer concentration is an issue (one client = 50% of sales), strategize to diversify the client base or secure longer-term contracts that make revenue more stable. If margins are below industry, maybe there’s room to cut costs or adjust pricing. Essentially, treat the valuation as a diagnostic tool – it pinpointed weaknesses in the business from a buyer’s perspectivetransworldma.com. By addressing those, the business becomes more valuable over time. You can propose re-valuing after improvements are made. On the flip side, if the owner needed a certain value for retirement and it’s not there yet, better to know now – they might choose to work a few more years on growth or adjust their retirement expectations. As a CPA, you play a crucial role in this “valuation gap” discussion, bringing data and realism to planning. Additionally, if the valuation was for a specific transaction like a sale and it’s lower than an offer they have in hand, it might indicate the offer is actually generous (or strategic). In negotiations, a formal valuation can help anchor expectations or justify why a price is fair or not.
Q9: How often should a business be valued?
A: There’s no fixed rule, but a good guideline for healthy planning is every 1-2 years, or whenever there is a major change or event in the business. For rapidly growing businesses, an annual valuation can track their progress (and is often needed if they are issuing stock options annually, due to 409A rules for startups). For stable businesses, doing it every two years might suffice just to keep an eye on value trends. At minimum, any time a business is approaching a significant event – such as the owner considering retirement/sale, bringing in a partner, a major investment, divorce, or estate planning updates – a fresh valuation should be done. The environment can change too (economic conditions, industry multiples), so a valuation from 5 years ago might be very out-of-date. Think of valuations as part of a strategic check-up, much like how one might do periodic financial audits or forecasts. Some owners even track an approximate valuation yearly based on EBITDA multiples from the market to gauge performance. For internal use, an owner might ask their CPA annually, “based on my latest numbers, about what is it worth now?” – which could be a calculation engagement to update. If using a service like simplybusinessvaluation, the affordability means more frequent updates are feasible without a huge cost burden. Ultimately, any time there’s a key decision to be made that depends on the business’s value, that’s the time to get a valuation. And keeping valuations somewhat current can make eventual due diligence for a sale or financing easier (fewer surprises).
Q10: What information will the CPA or valuation analyst need from the business owner to do a valuation?
A: Comprehensive financial information and background on the business are needed. Specifically:
Financial Statements: Last 3-5 years of income statements and balance sheets (preferably accountant-prepared or at least from their accounting software). Interim statements for the current year.
Tax Returns: These help verify the financials and catch adjustments (many small biz valuations use tax returns to normalize or double-check accuracy).
Owner’s Compensation and Benefits: How much the owner(s) draw in salary, bonuses, perks. Details on personal expenses through the business (vehicle, cell phone, travel that’s personal, etc.) – for adjusting to SDE or EBITDA.
List of Adjustments: Any one-time revenues or expenses (e.g., last year you had a big legal expense due to a lawsuit, or a gain from selling a piece of equipment – those might be non-recurring).
Debt and Interest: Details of loans, as debt may be accounted for or to ensure interest expense is treated properly if doing cash flow analysis.
Industry and Operations: A description of what the business does, its products or services, key markets, competition, and unique value proposition. The analyst might ask about market position – e.g., “Are you a price leader or premium service? What differentiates you?”
Customer Profile: Number of active customers, any heavy reliance on a few customers? Similarly, supplier concentration? (This assesses risk.)
Staff/Management: An org chart or explanation of who runs the business day-to-day. Is the owner working 60 hours a week doing everything or is there a team? (Important for risk and continuity.)
Assets: List of major assets – machinery, equipment, real estate (if owned). If they have an equipment appraisal or fixed asset list, that helps for the asset approach.
Growth Plans: Are there expansion plans, new contracts, or threats (like losing a big client soon)? Sometimes a valuation might incorporate expected changes, so knowing future outlook is helpful. Formal projections are great if they have them, otherwise at least a sense of whether revenue next year will be up, flat, or down and why.
Ownership Details: Percentage ownerships (especially if not 100% is being valued), any previous offers or transactions of shares, buy-sell agreement terms if any (some agreements fix a value or formula).
Location and Lease info: If it’s brick-and-mortar, details on lease terms or if property is owned (value might be separate in real estate).
Any specific valuation purpose context: e.g., for an SBA loan, they might need an asset list with FMV, or for divorce, they might need to know restrictions on shares, etc.
Gathering this may seem intensive, but as a CPA, you likely have much of the financial data already. The more complete and accurate the information, the smoother (and more credible) the valuation will be. If some info is not available (like they don’t have industry reports – that’s okay, the analyst will use external databases for industry data). The key for owners is to be transparent and timely in providing what is requested. Remind them that everything is kept confidential and it’s in their interest to give full info (for example, don’t hide a personal expense because you’re shy about it – it actually helps increase the valuation when added back!).
Q11: Will using a white-label valuation service lock me into any contracts or can I use it as needed?
A: Generally, services like SimplyBusinessValuation.com allow CPAs to use them on an as-needed basis. There’s usually no long-term obligation or volume commitment (though they may have membership options for discounts). You can engage them for one valuation this month, and not use again until six months later, for instance. It’s very flexible. The idea is to make it easy for you to offer valuations when it benefits your client, without significant overhead for you. Of course, if you find it useful and foresee multiple valuations a year, you might formalize the partnership (some have referral agreements, etc.). But there’s typically no downside to trying it for one engagement. Always review their terms of service; some might have you sign a simple engagement or reseller agreement. But the norm is that CPA firms can white-label on demand. This flexibility is a big advantage because you can scale usage up or down with your client needs. In contrast, hiring a full-time valuation analyst would mean you’d want a steady flow of work – with white-label, that concern is gone.
Q12: Is the valuation provided by simplybusinessvaluation.com USPAP or SSVS compliant?
A: SimplyBusinessValuation.com’s reports are prepared by certified appraisers, and they appear to target CPAs and formal uses, so it’s very likely that their work complies with relevant standards. SSVS (Statement on Standards for Valuation Services) is the AICPA standard and is applicable if an AICPA member is doing the valuation or if the valuation is for AICPA-related purposes. USPAP (Uniform Standards of Professional Appraisal Practice) is a broader standard often adhered to by appraisers (like ASA certified appraisers must follow USPAP). The question of compliance might come up if the valuation is going to be reviewed by third parties. For example, SBA loans often require USPAP-compliant appraisals, and certain courts might expect USPAP as well. If needed, you can ask simplybusinessvaluation for confirmation – given the thoroughness of their offering, they likely state compliance in the report or cover letter. Many appraisers word a line like: “This valuation was conducted in accordance with the Uniform Standards of Professional Appraisal Practice and the AICPA Statement on Standards for Valuation Services.” Also, the credentials of the signers (CVA, ASA, etc.) inherently require them to follow those standards in any official valuation. So you should feel comfortable that the deliverable is up to professional par. If a client or banker asks, you can show them that the appraiser is certified and include any statement from the report about standards followed.
Q13: Will the valuation service also help in defending the valuation if needed (e.g., IRS audit or legal challenge)?
A: If you’re using a white-label service, this is an important consideration. Some services (especially those run by certified professionals) will stand behind their work and may offer support if the valuation is later scrutinized. For instance, in the event of an IRS query on a valuation used in a gift tax return, the appraiser who signed the report could provide backup calculations or even testify as an expert if arrangements are made (likely for an additional fee if it gets to testimony). SimplyBusinessValuation.com has a “Risk-Free Service Guarantee”simplybusinessvaluation.com which likely pertains to client satisfaction, but doesn’t explicitly say about audit defense. However, one would assume if their valuation was used properly and then questioned, they would assist in explaining their methodology. It’s worth clarifying with them – “Do you offer support if the valuation conclusions are challenged by a third party?” Many will at least provide written responses to questions or an affidavit about the process. Others might formally offer to serve as an expert witness (some might charge separate for court appearances). For internal or planning valuations, this isn’t usually an issue. But for tax or litigation, knowing the backup is there is comforting. Since the reports are signed by credentialed appraisers, you could also directly contact that signatory in such cases. In summary, they likely would help defend the work’s integrity, but one should confirm on a case-by-case basis. As the CPA, if you foresee a contentious use (like litigation), you might coordinate more closely with the provider to ensure they’re prepared to support it under such circumstances (this might involve engaging them not just as a white-label but as disclosed experts, depending on the case).
Q14: How does a white-label valuation appear to the client? Will they know an outside firm did it?
A: The whole idea of white-label is that it appears as if it’s from your firm. So typically, the valuation report delivered to the client can be branded with your firm’s logo and formatting, and does not show the third-party’s branding. The content inside might mention the analyst’s name and credentials (and possibly their signature and maybe a firm name in the certification section – this can be a nuance; some white-label arrangements have the appraiser sign under their own firm or as “Independent valuation analyst”). It’s possible the report might include a line like “Prepared by: [Appraiser Name], CVA” without highlighting simplybusinessvaluation.com brand. You can likely discuss how you want that handled. In many cases, CPAs present the report to the client as a part of their service, sometimes saying “we partnered with a specialized valuation analyst to prepare this report.” There’s nothing wrong with being transparent, but if the preference is to keep it seamless, the client need not focus on who the analyst is, just that it’s a credible report you delivered. If the client directly asks, be honest that you utilized your professional network/resources to ensure a high-quality valuation. Most clients won’t mind – they actually appreciate that an expert was involved. But they’ll still attribute the successful delivery to you (since you managed it). Practically, you’ll remove any obvious outside branding. SimplyBusinessValuation likely expects that and may not put their logo on white-label reports. They might have an option of co-branding or anonymity. The bottom line is, the client sees the CPA firm as the provider of the service. All communication goes through you, and the work product is presented under your banner, which strengthens your position as their trusted advisor with a broad service offering.
These FAQs address some of the common curiosities and concerns CPAs and clients have around the valuation process and using a service like SimplyBusinessValuation.com. Educating both yourself and your clients with straightforward answers helps demystify valuations, making the process smoother for everyone involved.
By now, as a CPA, you should feel more comfortable with the concepts of Business Valuation, how to leverage white-label services, and how to communicate the benefits to your clients. In the final section, we’ll provide a glossary of key terms used in business valuations – a handy reference as you incorporate this service into your practice.
Accredited in Business Valuation (ABV): A professional credential awarded by the AICPA to CPAs who have demonstrated expertise in Business Valuation through experience and examination. ABV holders are CPAs with specialized training in valuationbizworth.com.
Appraisal (Business Appraisal): Another term for a Business Valuation. Often used interchangeably, though “appraisal” is commonly associated with formal valuations following standards like USPAP. In real estate or equipment, appraisal refers to valuation of that specific asset; in business context, it means valuation of the overall enterprise.
Asset Approach: A valuation approach that focuses on the net asset value of a business (assets minus liabilities). It determines value by valuing each asset and liability at fair market value. Best for asset-heavy companies or when a company’s value derives mainly from its holdingscbiz.com.
Beta: A measure of volatility or risk used in finance, often part of calculating a discount rate (via CAPM). It reflects how much a company’s returns move relative to the market. In valuations, beta from public companies may be used as a proxy for a private company’s systematic risk.
Buy-Sell Agreement: A legal agreement among business co-owners that establishes how an owner’s share can be transferred (due to retirement, death, etc.) and often sets a formula or process for valuing those shares at the time of transfer. Periodic valuations or a defined valuation formula are critical components.
Calculation Engagement: Under AICPA SSVS, an engagement where the analyst and client agree on limited valuation procedures and methods, resulting in a “calculated value” (as opposed to a full conclusion of value). It involves less work than a valuation engagementthetaxadviser.comthetaxadviser.com.
Calculated Value: The outcome of a calculation engagement – an estimate of value based on agreed-upon procedures, not encompassing all valuation procedures. It may be presented as a range or point estimate, but with the caveat of scope limitation.
Capitalization Rate (Cap Rate): In valuation, especially the income approach (capitalized earnings method), the cap rate is the divisor applied to a single-period earnings figure to determine value. It is essentially the discount rate minus a long-term growth ratesimplybusinessvaluation.com. For example, if the required return is 15% and long-term growth expected is 5%, the cap rate would be 10% (0.10), and dividing the normalized earnings by 0.10 yields the business value.
Cash Flow (Free Cash Flow): The amount of cash generated by a business that is available to pay out to investors (equity or debt) after all operating expenses, taxes, and necessary reinvestment in working capital and capital expenditures. Valuations often use free cash flow projections in DCF models. Free cash flow to firm (FCFF) is before debt payments, whereas free cash flow to equity (FCFE) is after debt obligations.
Certified Valuation Analyst (CVA): A professional designation issued by NACVA (National Association of Certified Valuators and Analysts). It’s open to CPAs and other professionals and signifies training and testing in Business Valuation. CVAs, like ABVs, are recognized as qualified appraisal expertsbizworth.com.
Control Premium: An amount or percentage by which the value of a controlling interest in a business exceeds the pro-rata value of a minority interest. Essentially, because controlling a business (50%+ ownership, usually) gives the owner certain prerogatives (set direction, salaries, etc.), control shares are often worth more per share than minority shares. In contrast, see “Minority Discount.”
Discount for Lack of Control (DLOC): The opposite of control premium – a reduction in value applied to minority ownership interests to reflect the fact that they lack control over business decisions. If a 100% equity value is on a control basis, a minority slice might be adjusted down via a DLOC to reflect minority status.
Discount for Lack of Marketability (DLOM): A reduction in value to account for the fact that shares of a private company are not easily tradable (illiquid). Investors generally pay less for an asset that they cannot quickly convert to cash. DLOM is commonly applied in valuations of minority interests in privately-held companies, and even controlling interests if the company itself is illiquid. The size of DLOM can vary (studies of restricted stock, pre-IPO comparisons, etc., guide the percentage)simplybusinessvaluation.com.
Discount Rate: The rate of return used to convert future cash flows into a present value. It reflects the risk of the investment – higher risk demands a higher discount rate. In DCF valuations, the discount rate for equity is often derived from models like CAPM or buildup methods. For whole-firm valuation, the weighted average cost of capital (WACC) is used as the discount rate for free cash flow to firm.
Discounted Cash Flow (DCF) Method: An income approach method where projected future cash flows (for several periods) and a terminal value are discounted back to present at the discount rate, summing to yield the value of the businesscbiz.comcbiz.com. It’s a fundamental valuation technique focusing on the present value of future benefits.
EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company’s operating performance. It’s often used as a proxy for cash flow (though not exact). Many market multiples in valuation are based on EBITDA (Enterprise Value/EBITDA) for comparing and valuing companies. For small businesses, a seller’s discretionary earnings is more common, but EBITDA is used for larger ones and when comparing across companies.
Enterprise Value (EV): The total value of the firm’s operational assets, independent of its capital structure. It equals the market value of equity plus interest-bearing debt minus excess cash (in many definitions). In valuations, if you value the firm via DCF (using WACC), you get EV; you’d then subtract debt and add cash to get equity value.
Fair Market Value (FMV): The price at which property (or a business) would change hands between a willing buyer and a willing seller, neither being under compulsion and both having reasonable knowledge of relevant factsinvestopedia.cominvestopedia.com. It is the most widely used standard of value, especially for tax and many transactional contexts. FMV assumes a hypothetical market of likely buyers, not a specific synergistic buyer.
Fair Value: A term with multiple meanings. In financial reporting (accounting standards), it often means an exit price in an orderly transaction (akin to market value). In legal contexts (like shareholder oppression cases), it can mean value of shares without certain discounts (like not penalizing minority shares with a discount). Always clarify context for “fair value.”
Going Concern Value: The value of a business as an ongoing operating entity, as opposed to its liquidation value. Going concern value includes intangibles like goodwill, established workforce, systems, etc., which would be lost or not fully realized in liquidation.
Goodwill: In a valuation context, goodwill is the portion of the business value that exceeds the fair market value of its identifiable net tangible and intangible assets. It represents the intangible elements that contribute to earnings – like reputation, brand, customer loyalty, etc. When selling a business, goodwill is essentially what a buyer pays for beyond the hard assets. Goodwill = Purchase Price – (FMV of net identifiable assets)midstreet.com. It’s an intangible asset on the balance sheet when a purchase occurs (accounting goodwill). In small business sales, goodwill often constitutes a large part of the sale price and is an indicator of the business’s earning power beyond asset reproduction costsinvestmentbank.com.
Guideline Public Company Method: A market approach method where publicly traded companies similar to the subject are used as benchmarks for valuation multiplescbiz.com. Those multiples (e.g., P/E, EV/EBITDA) are adjusted and applied to the subject company’s metrics to estimate value.
Guideline Transaction Method: A market approach method that uses pricing multiples from sales of comparable private companies (transactions) as reported in databases. Sometimes called the merger and acquisition method or comparable transaction method.
Minority Discount: See Discount for Lack of Control. It’s the concept that a minority interest is worth less per share than a controlling interest, so a “minority discount” is effectively the DLOC percentage. For example, a 30% stake might be worth less than 30% of the whole company value due to lack of control, by the minority discount factor.
Net Asset Value (NAV): The value of a company’s assets minus liabilities. In valuation, “Adjusted NAV” refers to valuing each asset and liability at fair market value (instead of book) to get the net asset value of the company. It’s often synonymous with the result of the asset-based approach (on a going concern basis).
Normalized Earnings: Adjusted earnings that remove anomalies and reflect the ongoing earning potential of the business. Normalization adjustments can include removing one-time events, adjusting owner’s compensation to market rates, and stripping out personal expenses. Normalized EBITDA or SDE is used as the basis for applying multiples or for starting DCF forecasts, to ensure the figure reflects sustainable operations.
Rule of Thumb: An informal valuation heuristic, often industry-specific, used sometimes by brokers or owners (e.g., “restaurants sell for 40% of annual sales” or “accounting firms at 1x annual revenue”). While sometimes grounded in market observation, rules of thumb are not precise valuations and should be used cautiously. They can serve as a sanity check but lack the nuance of formal methods.
Statement of Value: In a valuation report, the concluding section where the appraiser states the concluded value (or range) of the business interest as of the valuation date, often along with the standard of value and premise of value (going concern vs liquidation) used.
Statement on Standards for Valuation Services (SSVS): Professional standards issued by the AICPA for CPAs performing valuation services. SSVS No. 1 (now codified in VS section 100) provides guidelines on how to conduct valuation and calculation engagements and how to report the resultsthetaxadviser.com. It defines terms and the level of documentation needed. CPAs doing valuations must comply with SSVS (and many non-CPAs follow its spirit too as a best practice).
Terminal Value: The value at the end of the projection period in a DCF, capturing all future cash flows beyond the last explicit forecast year. It often constitutes a significant portion of the total DCF value. Common methods to calculate it are the Gordon Growth Model (assuming cash flows grow at a steady rate forever) or using an exit multiple (assuming the business is sold at a certain multiple of a metric in the final year). Terminal value is then discounted back to present like other cash flowssimplybusinessvaluation.com.
Valuation Engagement: Under SSVS, an engagement where the analyst uses their judgment to apply the full suite of appropriate valuation procedures to reach a conclusion of value, without limiting scopethetaxadviser.comthetaxadviser.com. This contrasts with a calculation engagement. A valuation engagement results in a conclusion of value and usually a detailed report.
Valuation Multiples: Ratios that relate the business’s value to a financial metric. Common ones: Price/Earnings (for equity value), EV/EBITDA, EV/Revenue, Price/SDE (for small biz). Multiples come from market data and are applied to the subject to estimate value. For example, if similar businesses sell for 3x SDE, and the subject’s SDE is $200k, a ballpark value might be $600k. A good valuation refines and justifies the correct multiple.
Weighted Average Cost of Capital (WACC): The average cost of the company’s financing (debt and equity), weighted by their proportions in the company’s capital structure. WACC is commonly used as the discount rate for valuing the firm’s free cash flows (enterprise DCF), because it reflects the return required by all capital providers. It takes into account the cost of equity (which could be estimated by CAPM) and after-tax cost of debt, weighted by target or actual capital structure.
This glossary covers many of the fundamental terms you’ll encounter in Business Valuation discussions. As you delve into specific valuations, you may come across additional technical terms, but the above should equip you with a solid baseline vocabulary. Feel free to refer back to this glossary whenever you need a refresher on what a concept means.
Conclusion: Business Valuation is a powerful service that CPAs can offer, combining analytical rigor with strategic insight. By understanding the approaches, methods, and key factors in valuation – and by leveraging resources like white-label services – you can better serve your business clients at pivotal moments. Whether it’s helping an owner prepare for the sale of a lifetime, a family plan an equitable estate transfer, or simply benchmarking performance, your role as a CPA is integral in guiding clients through the valuation process with confidence and clarity.
With the knowledge from this guide and the support of partners like SimplyBusinessValuation.com, you can elevate your practice to new heights, becoming not just the keeper of books and taxes, but the trusted advisor who helps clients unlock the true value of their businesses and achieve their most important financial goals.
References:
Income, Asset, Market – Why Different Valuation Approaches Mattercbiz.comcbiz.comcbiz.com
City National Bank – Why Business Valuation Is Importantcnb.com
Transworld/Forbes – Survey on Business Owners and Valuation Readinesstransworldma.com
Simply Business Valuation – White-Label Services for CPA Firmssimplybusinessvaluation.comsimplybusinessvaluation.com
BizWorth – Importance of ABV and CVA Credentialsbizworth.com
AICPA SSVS No.1 – Definition of Valuation vs Calculation Engagementthetaxadviser.comthetaxadviser.com
Exit Strategies Group – Definition of Seller’s Discretionary Earningsexitstrategiesgroup.com
MidStreet – Definition of Goodwill in a Business Salemidstreet.com
