Back in the day, teachers would ask a question that could send shivers down your spine: “Would you rather do an oral or a written report?” Either way, us students knew both options involved a lot of work. Flash forward to the present and an interesting query emerges: How might you answer such a question today—would you prefer a written or oral examination?
You may consider it a “no brainer” to take the oral option. That’s understandable. Many entrepreneurs are extroverts who leverage their natural communication abilities for success. Then again, plenty of business owners are also introverts who would happily take the written version. (In fact, some of the most successful business leaders, including Warren Buffett and Mark Zuckerberg, are introverts by nature.) Regardless of where you fall on the introvert/extrovert spectrum, there’s another aspect to the “oral vs. written” conundrum you probably haven’t considered: the business valuation.
Thankfully, it’s your turn to be the audience rather than presenter.
What is an Oral Report in Business Valuation?
Our firm Sofer Advisors is comprised of experts focused on providing our clients with thorough, defendable business valuation reports. Such a report can take several forms: The traditional written version most business owners usually think of—but also as an oral report, providing not just an initial valuation, but a detailed overview of the business fundamentals and assumptions made to calculate such a value.
When explaining this reality, one of the first questions we usually get is, “What is an oral report?” The second question naturally follows: “Which one is right for me?” For most companies, the answer is actually both.
Based on that insight, let’s cover the advantages of an oral business valuation report, making it such an important option. Put simply, a final written report may be needed for anything from M&A activity to court proceedings. But the oral report is also pivotal to making that report as accurate as possible.
What are the Advantages of an Oral Report?
The primary advantage of an oral valuation report is that it gives a “sneak peak” of your business’ value direction. It especially gives you an off-ramp before you spend any additional money on a valuation that doesn’t support your thinking. As stated, most Sofer Advisors clients do continue with a written report as well, but we are a truly independent firm—there is no guarantee we will fall in line with a particular person’s thinking on a business valuation, whether they think the value ought to be sky high or particularly low.
Critically, the “sneak peek” benefit of an oral report is a godsend in disputes or other contentious situations. Why? Because both parties tend to be adamant that their position on the valuation is correct. (Why spend thousands on a written valuation that will support the other party’s decision?) Whether the issue is a simple disagreement, or a matter headed for litigation, an oral report serves a vital role—providing a quicker understanding as to whether the independent experts from Sofer Advisors will find a valuation useful to your position.
To be certain, much of the same work goes into both an oral and written valuation report. As to be expected, an oral report is also typically available sooner due to the reduced time it takes to prepare. The fact that it is ready faster, and that it enables more interaction between the Sofer team and clients presents several material benefits.
Based on the speed of an oral report versus the final written report, clients enjoy a “first taste” of their business valuation. There is an advantage to determining early on if desired numbers will or will not match reality. Getting this info out of the gate can calm an owner’s nerves, lessening their anxiety about, let’s say, considering a life change like selling a family business. Getting an oral report fast is particularly helpful if your business has never been valued by experts or if it has been years since receiving a proper valuation.
Either way, this represents just the start of how an oral report can help you achieve the optimal valuation for your business. Another advantage is that it can directly lead to a more accurate final written report. We at Sofer Advisors don’t merely say, “Here’s the value of your business. On your way.”
Instead, we handhold, thoroughly walking you through how we reached our estimation. (By its nature, a business valuation will include calculations and assumptions that can—and should—be challenged if they seem off.) If we assess any such challenges to be valid, we will recalculate the valuation using amended assumptions. The end result for you? A written valuation that is more accurate to the real-world conditions of your business.
The last key benefit of an oral business valuation report is its ability to assess both sides of the situation. Business owners often have deeply held beliefs about the value of your business. This is natural; it’s your baby! So, if an oral report presents a value that does come in lower than expected, you aren’t left wondering why the value arrived where it did. You instead stand to gain a clearer understanding of those factors contributing to the valuation. This is especially useful when two sides cannot agree on the value of a business—as in a shareholder dispute or a divorce.
Written Valuation Report vs. Oral Report
Although every savvy company wants to be mindful of costs, saving money alone isn’t a solid enough reason to go with an oral report. In fact, an oral business valuation report usually costs about 70% of the total for a formal written valuation report. Why? So much of the same work goes into developing either option. Even so, as the above attests, there are enough benefits to pursuing an oral report that it should be considered a key step in certain business valuation contexts.
In our team’s many years of experience, few clients received an oral valuation report and chose not to carry on with the full written report. This is due to the skill and dedication of the Sofer Advisors team, not to mention the fact that an oral report helps produce an even more accurate written report.
If you are indeed considering a business valuation, especially in a situation where deep divides exist between multiple parties, an oral valuation report can be critical for resolving differences. To learn just how Sofer Advisors can help your business succeed with its industry-leading approach to business valuation, please contact us today for your free consultation.
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.