Which credential is best for performing business valuations?
Demand for valuations of U.S. businesses remains solid, so some accountants and other advisors might be weighing whether to pursue valuation credentials with one or more of the professional organizations in order to expand their services.
Do you need a credential in order to provide business valuations?
“In the broad, global sense I think you should have a credential if you’re going to do this work – particularly if you’re doing go to do it for IRS purposes and litigation purposes,” says Jim Alerding, an inductee to the AICPA Business Valuation Hall of Fame with more than 35 years of experience in complex valuation and litigation support matters. “It’s almost a necessity.”
Alerding recently led a webinar for valuation professionals: “Calculation vs. Valuation: How Each Fits in Your Practice and What You Need to Know.”
Alerding, a former member of the task force that wrote the AICPA’s valuation standards and a co-author of Financial Valuation: Applications and Models, says it is tougher to get engagements without a credential. Moreover, going into a trial without a credential could be problematic. “The other side is going to utilize that to impeach you as an expert,” he says. “The first thing they will try to do is get you thrown out … by saying you don’t really have demonstrated qualifications to do the work you’re in the courtroom to do.” While many courts are reluctant to throw out the expert, especially one with experience, more judges are now attuned to the need for credentials, Alerding says.
Credentials available for business valuations
Numerous organizations offer credentials for providing business valuations, including the AICPA, which has the Accredited in Business Valuation (ABV) Credential. The National Association of Certified Valuators and Analysts (NACVA) provides the Certified Valuation Analyst (CVA) credential, and the American Society of Appraisers offers the Accredited Senior Appraisal (ASA) credential.
While people with each of those professional organizations will argue reasons their credential is the best, the important point is to have one of the credentials, Alerding says. “At this point, there’s been enough time in the marketplace, in my opinion, you’re not any worse off if you have the AICPA, NACVA or ASA credential.”
“If you have the ABV, the CVA or the ASA, you should be able to qualify in any litigation setting, and all three have good training for valuation professionals,” he adds. “If you are doing valuation work generically, there’s not a reason to get one over the other except the path that is best or easiest for you to take.”
For example, in order to get the ABV certification from the AICPA, you have to be a licensed CPA, which eliminates those not interested in pursuing a CPA. The ASA has more rigorous entrance requirements – it requires five years of full-time experience in valuation – than some of the other credentials, so that is something to consider as well, according to Alerding.
Pay as an expert won’t really vary based on the credential, says Alerding, who has testified more than 400 times. “It’s mostly based on the reputation and experience of either the witness or the witness’s firm or both.”
Other advice for new business valuation pros
Other than considering a credential, Alerding would also advise someone starting out in valuation to align themselves with another valuation pro – almost like the apprenticeships from centuries ago. “My own feeling is that it’s not necessarily ‘the bigger the firm, the better,’ but you need enough substance of valuation professionals in the firm that you’re going to get enough training,” he says.
He recommends finding out what kind of training the firm will provide, because the training can be expensive and most firms running an active practice will pay on your behalf. “You also need experience in these areas to get these credentials, so you need to be in a firm that’s going to let you get the experience that’s needed to qualify,” he adds.
Alerding expects valuation professionals should have decent business opportunities for the next 10 or 15 years. Demand is flattening out some, in part because more people are trying to get into business valuation. However, he expects good demand in the intermediate term.
“The people I talk to are plenty busy and seem to believe it’s going to continue,” he says. Tax regulations that would limit valuation discounts for estate, gift and generation-skipping tax purposes were recently scrapped as burdensome by order of President Donald Trump, and that will increase some valuation for tax purposes.
Alerding believes there remains a lot of valuation work in the tax area, even if the estate tax is repealed as part of the GOP’s efforts to get tax reform enacted.
“If the economy continues to be active, we still have a lot of baby boomers who have not disposed of their businesses,” he says. “Whether they give it to their kids or sell it in the open marketplace, they’re still going to need some sort of valuation in order to effect a transfer. I still think there’ll be a pretty good market.”
Indeed, the Exit Planning Institute, which provides professional certification and development for exit planners, estimates that some 4.5 million firms representing more than $10 trillion in business value will transition over the next decade or so, as baby boomers continue to sell or pass on their businesses to heirs.
“I still think it’ll be a pretty good market [for business valuation professionals] for the next 10 or 15 years,” says Alerding. “After that, it just depends on how active the economy is.”
Webinar featuring Alerding: Calculation vs. Valuation: How Each Fits in Your Practice
Practice Aid: 8 Fundamentals for Increasing the Value of Your Client’s Business
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