Decoding the Maze: How to Select the Right Business Valuation Expert

There’s a fact of life most adults come to grips with at some point.

The more important something is, the harder it can be to find the right expert to help you out. One classic example? Medicine. Many Americans now struggle with finding the right specialist. Business owners face a similar challenge when it comes to gauging the health of their company via business valuation services. The good news is that finding the right business appraiser isn’t so challenging—if you’re asking the right questions.

Many business owners don’t think about the valuation of their company. This is understandable—they’re too busy running it. But when the need for business valuation specialists does arise, they don’t know where to turn. Just as practically any IT problem is sent to an IT generalist, the first instinct of some business owners is to call the CPA who handles their taxes and other accounting concerns. Others yet turn to financial professionals like financial planners who may offer attractive pricing on valuations as a loss leader.

Unfortunately, your general CPA or other financial professional is neither equipped nor independent enough to perform the extensive valuation you and your business deserve. Their goal is to be “sticky” and protect their lucrative annual work, like tax returns and audits, by providing a cut-rate valuation. Beyond the questionable accuracy of a valuation performed by a generalist instead of an expert, the financial professionals you already work with are not independent. Their valuation will not hold water because their impartiality is easily disputed.

Now, if you ask the typical small business owner, “Who can perform the right business valuation?” the most common answer will be “anyone with a CPA.” There are several reasons why this isn’t the case. For starters, if the valuation is required for a serious disagreement likely to end up in legal action, a judge won’t hesitate to throw out a valuation if they find it was completed by someone lacking the credentials and experience to be considered a business valuation expert.

That is exactly what happened in the 2023 case of Hoensheid v. Comm’r (In re Estate of Hoensheid). Expert witnesses can be challenged if their credentials aren’t up to the task in what is called a Daubert Challenge. Because the Sofer Advisors team holds accreditations, including ABV and ASA, you will never need to worry about your expert witness getting kicked out of the courtroom. That is the last thing you want to think about in a contentious legal matter involving your business.

But even if you aren’t headed to court, it’s still imperative that you find a business valuation expert to appraise your company. Importantly, a deep dive valuation performed by experienced experts holding credentials from authorities like the AICPA and the Appraisal Foundation does far more than provide a dollar value to your business. It offers invaluable insights into what makes your company tick, and, more importantly, how it can improve for a higher valuation in the future.

Still, credentials aren’t enough to determine if a valuation expert is right for your business. You must also consider industry qualifications. Have they valued your type of business in the past—multiple times? Such industry experience enhances a valuation expert’s work because they have added insight into the general practices of your competitors and other players.

So, how do you find the right valuation expert? I advise breaking the process into three steps.

1. Understand why you need a valuation

As a business owner, it’s vital you have a clear grasp on why you need a business valuation. Is it due to a divorce or partnership split up? If so, you require a valuation expert ready and willing to tangle with the other party from the witness stand—something Sofer Advisors has done for clients many times.

Other circumstances can also guide your decision. Buying or selling a business? Then you should focus on finding an expert with strong M&A experience and credentials. In many cases, the motivation behind the valuation is to know where your business is and what it’ll take to take it to the next level. Achieving this result takes more than plugging numbers into a spreadsheet. It requires years of experience in valuing small and medium-sized businesses.

In summary, your appraiser must have experience for your triggering event. Hiring a valuation expert that predominantly handles estate planning and litigation situations to do an M&A valuation is a recipe for failure.

2. Make the commitment to work with an expert

It’s natural to associate expertise with large bills at the end of a project. After inquiring who can complete a valuation, most business owners wonder, “How much does a business valuation cost?” Meanwhile, the intensive nature of a proper valuation is also why many financial professionals advertise deeply discounted appraisals to rope in clients for other services—they know cost is a consideration.

Sofer Advisors will never be the lowest cost valuation firm on the market, but we are the best. We also prove to every client how a properly executed business valuation isn’t just a necessary cost—it is a source of great value. Accordingly, the feedback we receive from clients is that whether we provide a valuation that defends them successfully in court or helps them formulate a strategic path to a higher level of success, our work is worth its weight in gold.

We also enjoy an extremely high retention rate with our satisfied clients. You won’t gain that type of value from a generalist CPA or CFP! Business valuations are a service. Like any service you shop for, you should take the time to look for customer reviews on sites like Google, and customer testimonials. If an appraiser has few or no reviews and doesn’t have customers willing to talk about their experiences, there’s probably a good reason.

3. Determine what you want to get out of the valuation

It’s key that you get clear on what you want to take away from a valuation. I’ve talked to many business owners who look at a valuation as a basic exercise to produce a number for bank paperwork. That’s not what you want as a business owner. No. That’s what your banker told you they want.

Ultimately, Sofer Advisors’ combination of defensible valuation practices and key insights into what drives value at your company provide an added dimension of information beyond any dollar value. We counsel our clients that a properly executed business valuation is the best insurance business owners can buy because of the protection and peace of mind a thorough valuation brings—not to mention the fact that in 99 out of 100 cases, a valuation moves the needle in a client’s favor. And if you’re concerned that you’re the 1 out of 100 whose valuation does not support your thought process, we offer an oral report option that gives you an exit ramp if the report does not support your cause—with no paper trail.

A classic example of this process concerns when a business owner receives an unsolicited offer for their company. This figure may come in much lower than the number they had in their head. We’ve had clients explain how they lost sleep for days wondering if it was purely a low ball or if their business really wasn’t as valuable as they thought. Sofer Advisors can answer that question—but more importantly, if it wasn’t such a low-ball offer after all, we can provide deep insights into how your company’s value may be improved.

Your Next Step in the Valuation Process

At the end of the day, business owners receive the most successful valuation experience when they know why they need a valuation, they choose to work with valuation experts, and they understand the potential for a valuation to improve their legacy, not just provide a pure financial estimate. My team and I are more than ready to help your business succeed. The next step in your valuation journey? Contact Sofer Advisors today for your free consultation.

Let’s decode that maze together.

David Hern is the founder and chief executive officer of Sofer Advisors, LLC focusing on business advisory services related to litigation assistance, estate and tax planning, and business enterprise valuations for various privately-held and public companies. He is a qualified financial analyst with a proven ability to simply and clearly communicate analysis to boards of directors, presidents and CEOs, CFOs, controllers and private equity portfolio managers. David has been recognized for enabling organizations to determine their enterprise and equity value for a variety of situations including strategic planning, sale or IPO, mergers and acquisitions, financial reporting (common stock, stock options grants, purchase price allocations, impairment analyses, etc.) and tax compliance (estate & gift, 409A, NUBIG). Industry experience includes, but is not limited to, professional services, business service, healthcare, information technology, financial services, and manufacturing & distribution.