“How many hours, on average, do you spend on these engagements?” That was the question presenter Gary Trugman asked attendees of BVRs most recent teleconference, “Valuing the Very Small Company.” Registrants emailed their responses over the course of the 100-minute session, and their answers ranged from 12.5 hours (for a calculation of value) all the way up to 100 hours. But the average fell just around 50 hours, which didn’t surprise Trugman. “I was thinking that a range of 40 to 60 hours was typical,” he said.
Is it still safe to perform a calculation of value? More surprising was the amount of time the conference presenters spent answering 20+ questions on performing calculations of value (versus conclusions of value) when client funds are limited. Typical among these: “One way that I have been able to meet a client budget…is to call the engagement a ‘calculation,’” said one attendee. “I still do all the procedures necessary to feel comfortable in my value. However, since writing the report is frequently the most costly portion, I limit my reporting to the very basics. By calling it a calculation, I don’t have to show all work in my report. Is this a problem?”
In a word—yes, there are a myriad of problems that can plague the appraiser, not the least of which are the limitations that SSVS-1 (AICPA) imposes on the use of calculations. “A calculation is NOT a conclusion of value,” said panelist Stacey Collins. They might be appropriate in an initial consult with a long-time client who’s thinking of retiring or selling, perhaps; or where the appraiser is reviewing another’s work. But doing a valuation engagement with documented scope limitations doesn’t avoid all of the problems. The bottom-line, according to Ron Seigneur, is that most appraisers will not be able to justify a calculation (due to lack of client funds or other reasons) when they should have performed a complete conclusion of value in the first place, especially in a litigation setting. “Sometimes,” Trugman added, “you just have to walk away from those engagements.” We’ll have a complete write-up of the experts’ discussion and more in the next Business Valuation Update.
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