Advisors up their game to provide better advice to clients
Gone are the days when an expert witness/specialist in valuation could just say, “based on my experience” and expect their audience to accept it. Even with increased guidelines and practices in place to provide more information and transparency, we as specialists in valuation are finding that with each passing year the demand for more and more scientific support of our assumptions is expected.
As the market continues to go through ebbs and flows, we also see greater scrutiny in almost every aspect of business. That certainly is not a bad thing. In fact, I think it has caused many advisers to up their game in order to provide better advice to their clients. That, in turn, results in improved performance with those business owners or (fingers crossed) faster resolution of disputes. And, I'm sure we can all agree that translates into growth. For individuals — for companies — and for the overall economy. Even so, there remains a need for further education on what is expected from the market so that we can continue to improve from both the specialists' and the business owner's perspective.
I was speaking to an attorney recently and was quickly reminded of this fact. Those of us who provide expert witness/specialist services understand the need to have strong quantitative (scientific) support of our opinions in a litigation matter. Historically, this need was not as common for non-litigation related valuations — so it has been an education for many as market demands continue to change. That would explain why the IRS has moved to outlining specific guidance for what qualifies as a specialist in performing tax valuations. We may even see similar guidance coming soon from the PCAOB and other agencies in relation to valuations performed for public companies and complex securities. Both of these areas are viewed as higher risk, and thus have a higher level of scrutiny applied.
But why should we wait for someone to make it a regulation or tell us that it has to be done. Our economy still hasn't fully recovered and many believe that it's because most investors remain cautiously optimistic, at best. Others simply don't understand what may be needed to take that next big step. They want to have confidence that the investment is valuable to them. Why not show them. Provide them the information we already have in hand, prove the value claims out by trending analysis and comparisons to other market activity. We did that when the market was stronger and investors were seeking out the best deals. Why not now — when our market recovery and the future of our businesses depend upon it more than ever.
The burden doesn't just fall on the specialist, however. It also falls on the business owner(s) to provide complete, accurate information in a usable format. It requires an understanding by the specialist, the business owner(s) and any other consultants of the business as to the underlying purpose of the valuation so that all relevant data can be identified and analyzed appropriately. More so, it requires collaboration and transparency among the group so that the specialist is able to arrive at a reasonable and supportable conclusion of value. This allows the business owner(s) to move forward with their business plans or (fingers crossed) resolve disputes. More evidence that the financial data and assumptions used in valuations are supportable translates into increased confidence in business … and the economy. So while it may seem like more work, in the end, it is a win for everyone.
• Virginia Schnippel is a director in BKD's Forensic & Valuation services team, specializing in business valuations. She can be reached at (630) 282-9583 or vschnippel@bkd.com. For more information on Forensics and Valuation topics, visit the BKD Forensics blog at bkdforensics.com