10 tips for business valuation report writing and standards compliance


How to write a business valuation report may seem an unlikely subject. However, several current trends reflect confusion in this area and make it surprisingly relevant. Should an appraiser ever write a calculation report? If so, when is it appropriate? How can appraisers write reports that are cost-effective and timely while still exercising proper due diligence? Appraisers know they need to comply with the professional standards their designation mandates, but how often do they review the applicable standards?

In BVR’s evergreen special report, “How to Write Bulletproof Valuation Reports,” expert valuator Sheri Schultz provides her top 10 practical tips for best report-writing practices.

Tip #10: Start with a template.

Develop a report template for your firm—including all possible methods, scenarios, language, models, etc.—that you can utilize without having to spend time searching through past reports. Don’t start with the last report you wrote as there is a chance you could miss revising a name.

Tip #9: Cater to your reader.

If the user of the report will be a small-business owner who doesn’t know a WACC from a MVIC, then make an effort to define the terms. If the primary reader is the IRS, you may be able to leave in some of the more difficult material without defining everything in detail.

Tip #8: Write a complete story.

Remember that most third-party users don’t have the benefit of your management interviews and site visit; be sure your company background includes who, what, when, where, why, and how of what the company is and does. Relate the required content to the actual valuation. For example, how does the economic overview and industry analysis impact your final conclusion?

Tip #7: Check for inconsistencies.

Valuation variables should be consistent throughout, particularly in any alternative analyses. If you’ve changed your schedules, for instance, then check for all occurrences of the changes in the report. And double-check the “vulnerable” areas of the report, such as assumptions, normalization adjustments, discounts and capitalization rates, company-specific risks, and industry premiums. These can be traps for the unwary.

Tip #6: Include adequate explanation.

Avoid vague or ambiguous statements (such as “probable” or “for the most part”) and avoid absolutes, too (such as “always” or “never”). Avoid presenting conclusions without supporting information or logical analysis, and fully explain any adjust­ments to historical or projected data. Do not avoid unfavorable facts, and make sure to disclose all relevant facts.

Tip #5: Walk the reader through your schedules.

Don’t make the reader rifle through the report to find the key numbers. If you present a calculation supported by a schedule or appendix, then guide the reader to the backup, and add more explanation in your Excel schedules so that they can stand on their own, if necessary. In addition, note who prepared the schedules.

Tip #4: Use appropriate grammar and structure.

Business appraisers are analytical people. They are more comfortable with numbers, but, if someone doesn’t understand what you’ve done with the numbers, then all of your effort will be lost. To help readability, use active verbs, vary the sentence structure, and use appropriate transitions and subhead­ings between paragraphs as well as sections of the report.

Tip #3: Put findings in the report; put research in appendices.

The body of the report should include all findings, opinions, and conclusions, but the appendices should contain the backup research and support. For example, limit the explanation of how you estimated the WACC com­ponents in your report, and include a longer write-up on the theory and construction of WACC in an appendix. Research is not material to the development of your valuation conclusions, and you don’t want to lose your reader’s interest.

Tip #2: Be concise.

Simplify, simplify, simplify. Do what you say and say what you did. Make your report long enough to convey the necessary material and not one page longer. Do not repeat the same material in multiple places; cut unnecessary words. Make sure you change the verbiage that you use from client-provided materials and cut any “flowery” or too-favorable language. Also, write your report so that your spouse or your parent could understand it.

Tip #1: Get to the point.

Your readers want to know a number or a range of numbers. Give it to them right away, on page 1 of your cover letter or executive summary. Hit them between the eyes with just what they want.

Conclusion

To learn more on how to bulletproof your valuation reports, check out BVR’s evergreen special report that covers common questions business appraisers ask such as: Should an appraiser use a calculation report in a litigation setting? How can appraisers write credible and effective valuation reports that are user friendly? What are the differences in report writing standards, and do I need to comply with more than one set of standards? And much more.


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