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Stop creating “Frankenstein” business valuation reports

Sageworks
February 12, 2015
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By Mike McCaffery, Regional Consultant – Valuation Solutions, Sageworks

Business valuation professionals know that writing the report is a major component of performing valuations. 

Mike McCaffery

For one thing, valuation analysts spend a lot of time on each report. In fact, writing the report is the most time-consuming part of the process – even more time-consuming than the data collection, data entry or calculations. 

At the same time, you wouldn’t want to skimp on time and effort when it comes to writing the business valuation report. The report is the key takeaway your client will have from the engagement, and it will create an impression that lasts for years and can influence future business. It is also your shield for defending your opinion should you ever have to go to court over an appraisal.

For many valuation professionals, however, the report is also a major headache. Most people performing valuations may have a system for developing a quality report, but many of them don’t have an efficient system for doing so. 

Excel, Word are common tools

Most people we’ve spoken to use Microsoft Word and Excel to cobble together pieces of the report from old reports and add new data. During a recent webinar with Sageworks, 86 percent of valuation professionals attending said they use Microsoft Word and Excel to create their business valuation reports. Only 14 percent reported using a different software product.

Many valuation pros cut and paste from old reports the boilerplate narratives and industry-specific data that they want to use in the current engagement. They then insert spreadsheets with the current client’s financial statements, an analysis of the client’s performance and any financial adjustments. They basically create a Frankenstein monster of a report every single time they start a business valuation engagement. 

Drawbacks: Time, errors, compliance

This approach has numerous drawbacks. First of all, it’s time-consuming. Forty-one percent of business valuation professionals on the Sageworks webinar reported spending 30 hours or more on average on each valuation report. 

Second, this approach is more conducive to making errors. A single mistake on a spreadsheet can be like a snowball moving down a mountain that causes an avalanche. The mistake can create cascading errors on other spreadsheets and throughout the report. And when data is coming from multiple sources and being accessed by multiple people in the firm, it’s even more likely that mistakes may slip in the report.

Ray Panko, a professor of IT management at the University of Hawaii and an authority on bad spreadsheet practices, noted in a 2008 analysis of multiple studies that 88 percent of spreadsheet documents audited in these studies contained errors. 

Finally, with two or more people involved in collecting data, adding information and editing spreadsheets and documents, the report becomes a jigsaw that is difficult to ensure remains in compliance with industry standards. Report preparers spend hours proofing the document to make sure they’ve removed information from old reports and inserted the correct information for the new engagement.

Growing efficiently

Business valuations represent one of a few areas of accounting expected to see tremendous growth in the coming years, and these services command higher margins than traditional accounting services. There are numerous opportunities for accountants to cross-sell appraisal services to existing clients and to capture new business as well, but it will be difficult to grow this aspect of the business without a more efficient process for report writing than that used by most practitioners.

Automated solutions can help valuation experts reduce error and save time in performing compliant valuations. It’s important that any solution preserve the valuation provider’s ability to use professional judgment to make modifications as warranted. And a solution that uses data feeds to import directly into the valuation report can also reduce errors and save time.

To learn more about optimizing business valuations in your firm, download a free whitepaper, “How to Build a Valuation Practice within Your Accounting Firm,” or watch a walkthrough of Sageworks Valuation Solution. On average, users are reporting a time savings of 6 to 10 hours per engagement with Sageworks’ solution. 

Sageworks Valuation Solution
Sageworks Valuation Solution is a web-based, business valuation solution that helps firms streamline workflow, scale existing processes and increase realization rates. Explore features and benefits by watching a one-minute walkthrough video.

About the Author

Sageworks

Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest

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