David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services including business valuation, fraud investigation, and fraud deterrence programs in Philadelphia and the Delaware Valley.
There are many circumstances under which a business valuation is required. These can include:
- For estate and gift taxes
- For divorces
- For certain business disputes and other litigation, including minority or disaffected shareholder oppression suits
- As required under certain business or partnership operating agreements, including for shareholder or partner buyouts
- As required for firms that are audited and have goodwill or purchase price allocation needs
- When a business is being sold and the acquirer makes a business valuation a requirement of the purchase agreement
- For insurance purposes (either to obtain business insurance or to support a claim)
- To meet certain government regulations (such as Department of Labor regulations for Employee Stock Option Plans)
Professional business standards require a business valuator follow certain procedures when performing a business valuation. These generally include:
- An analysis of the nature and history of the business
- Analysis of the economic outlook in general and the condition and outlook of the specific industry in particular
- A detailed analysis of the business’s economic performance and condition as well as a comparison to other similar businesses in the same industry
- Making normalization adjustments to the financial statements of the business
- Consideration of asset-based, income and market approaches in determining business value
- Application of marketability, control and other premiums and discounts
- Consideration of non-operating assets and liabilities
- Preparation of a report documenting all the above items
Sometimes, however, a business owner would merely like to know the value of either his/her business or one which he/she is considering acquiring. In such cases, while a traditional business valuation can be performed, a less rigorous type of analysis known as a Calculation of Value may be performed instead.
Under a Calculation of Value, the client and the business valuator agree on a more limited scope of procedures to be performed. For example, they may agree to not analyze the economic outlook and/or industry outlook; to not perform a detailed analysis of the business’s economic performance relative to that of similar businesses in the same industry; to not consider one or more of the three approaches to determining business value; and/or to not consider one or more valuation methods under particular valuation approaches. By limiting the procedures performed, the cost of the service will likely be reduced.
Typically, a Calculation of Value will result in an estimated range of values for the business (for example, the result may be an estimate of between $500,000 and $800,000). The Calculation of Value report will include the caveat that this is the result determined based upon the limitations in procedures performed, and that had all the normal business valuation procedures been performed, the results may have been different.
Nevertheless, when a business owner is seeking a reasonable estimate of business value (as opposed to a “scientific” opinion of value as determined under a business valuation), a Calculation of Value may be a reasonable and less costly alternative.
If you require the services of a Certified Valuation Analyst in Philadelphia or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.
About David Anderson & Associates
David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services. Company principal David Anderson is a forensic accounting expert in Philadelphia who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Valuation Analyst and a Certified Fraud Examiner in Philadelphia.
