The Marketing Edge of a Credentialed Valuation Advisor

Practice Pointers from the Field

How can a credentialed valuation analyst compete with a low-cost provider of valuation services performed by a professional lacking a business valuation credential? In this article, the author shares how he has succeeded conveying the value of using a credentialed and qualified business appraiser.

It is becoming an ever more difficult proposition to “sell” valuation services.  With the proliferation of valuation software, as well as the sheer number of credentialed valuation analysts, it seems as if there is always a practitioner willing to accept engagements at rock-bottom prices.  In this article, I will address why you should not compete on price alone.  I will also introduce several key discussion points you should have with referral sources, in an effort to educate them on the need for a thorough valuation analysis.

 

Let me begin by stating I am not taking the position that it is a mistaken strategy to compete on price; however, I do not advocate competing on price alone.  I believe we provide a very valuable service to our clients, and that we should be justly compensated for our work.  After years of servicing my clients, I have come to the conclusion that, in most instances, there is a gap between what I know I am selling my clients and what they think it is for which they are paying.  The bridge to that gap is simple–information.  Information such as the following:

 

• Accrediting Bodies and Business Valuation Standards
• Valuator vs. Advocate
• Qualified Appraiser and Qualified Appraisal

Accrediting Bodies and Business Valuation Standards

It is common knowledge, from a practitioner’s point of reference, that there are the following business valuation accrediting bodies:

 

• National Association of Certified Valuators and Analysts (NACVA)
• Institute of Business Appraisers (IBA)
• American Society of Appraisers (ASA)
• American Institute of Certified Public Accountants (AICPA)

 

It is not, however, common knowledge to those outside the valuation industry.  Many attorneys, non-credentialed accountants, business owners, financial advisors, and the like are largely unaware of the aforementioned accrediting bodies.  As such, one of the most important steps you can take in educating your referral sources is to note that you are in fact a credentialed member of NACVA (or any of the other accrediting bodies), which means your report must meet the standards of the accrediting body from which you have earned your appraisal designation.

 

At a minimum, I tell potential clients that my work must meet both the development and reporting standards set forth by NACVA.  If time permits, I will do a Go to Meeting with the individual and quickly walk them through a PowerPoint of the NACVA Standards.

 

Practice Pointers 1 and 2

Every valuation practitioner should have a simple PowerPoint presentation of NACVA’s standards, which they can discuss with their referral sources, as well as each client.  I prepared mine after NACVA’s standards were updated in 2011 and I use the same presentation for each client or new referral source.  My referral network is now on board with me and supports my efforts to gather documentation and give me the time to prepare a standards-compliant report.  Further, after discussing the standards with a new client, they too are on board and now have a deeper understanding of why I am asking them for so much information, as well as having a clearer picture of what exactly it is they are paying.  In most instances, the client (business owner) thinks that all they need to supply is the historical tax returns.  Reviewing the standards with the client ensures they are cognizant as to why you need each piece of information to complete the engagement.

 

This brings me to Practice Pointer 2: provide your client (or potential client) with a sample report.  Practitioners are oftentimes wary of sharing their work-product for fear that a competing practitioner may use their template.  I have not found this to be the case.  I have found this to strengthen my competitive position.  If the issue of price arises, I ask the client to ask for a sample of the work-product of the other appraiser.  If and when they obtain the sample, it is plainly clear to the client who is providing professional valuation services, and who is simply relying on software to generate a “cookie cutter” valuation.

 

Valuator vs. Advocate

It is important to clearly state your role as a professional valuation analyst when speaking to a new engaging party.  I always make the distinction that I am to provide my professional opinion of value, as opposed to being an advocate for my client, or their attorney.  I am a third party independent valuation professional.  Compensation for the engagement is not based on my final conclusion of value, but reflects a reasonable professional time charge.

 

Independence is a material issue in many cases, but is of the utmost importance in litigation matters.  I always say, “You can make the choice at any time to lose your independence and be an advocate for your client, but you can never go back–once you have ruined your reputation, it’s over.”  Just like some clients will solely shop on price, some attorneys will shop for an analyst that will take an advocacy position for their client and manufacture a number that will support that position.  Steer clear from these types of engagements.  That is a potential problem for the attorney and the valuation analyst that accepts those terms.

 

 

Qualified Appraiser and Qualified Appraisal

IRC Sec. 170(f)(11)(E)(ii) requires that valuations performed for the IRS (e.g., gift and estate planning and reporting, income tax valuations, and so on), must be performed by a Qualified Appraiser and the appraisal must be a Qualified Appraisal.  Let’s take a moment to examine the definitions of the aforementioned terms.

 

IRC Section 170 defines a Qualified Appraiser as an individual who: (1) holds an appraisal designation (from one of the recognized credentialing bodies cited above), and (2) regularly performs appraisals for which they receive compensation.  An individual will not be treated as a Qualified Appraiser unless: (1) they can demonstrate verifiable education and experience in valuing property subject to the appraisal, and (2) they have not been prohibited from practicing before the IRS.  Section 170 also points out the importance of hiring other Qualified Appraisers, such as real property appraisers, equipment appraisers, and the like, unless you have the credentials, education, and experience to opine on values for these types of assets.

 

IRC Section 170 defines a “qualified appraisal”, as an appraisal that: (1) is prepared by a qualified appraiser, and (2) meets the standards set forth by the appraiser’s accrediting body.  The code specifically states:

 

(ii) Qualified appraiser.  Except as provided in clause (iii), the term “qualified appraiser” means an individual who—

• has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in regulations prescribed by the Secretary,
• regularly performs appraisals for which the individual receives compensation, and
• meets such other requirements as may be prescribed by the Secretary in regulations or other guidance.

(iii) Specific appraisals.  An individual shall not be treated as a qualified appraiser with respect to any specific appraisal unless—

• the individual demonstrates verifiable education and experience in valuing the type of property subject to the appraisal, and
• the individual has not been prohibited from practicing before the Internal Revenue Service by the Secretary under section 330(c)of title 31, United States Code, at any time during the three-year period ending on the date of the appraisal.

 

Including the fact that you are a qualified appraiser and your work-product is a qualified appraisal is another strong determining factor that provides further competitive positioning.  I will point the potential client to the page on my sample report that states it is a qualified appraisal prepared by a qualified appraiser.

 

It is important to note that if the IRS does not treat you as a qualified appraiser, or your report as a qualified appraisal, there is no statute of limitations as to when they can audit the report.  In general, there is a three-year audit window from the date the return is filed (to which the valuation is attached), after which the IRS can no longer audit.  As such, it is in your client’s best interest to use a qualified appraiser that will produce a qualified appraisal.  Further, reliance on a qualified appraisal can excuse a taxpayer from accuracy-related penalties.

 

Practice Pointer 3

There have been several cases tried before the United States Tax Court where the issue of a qualified appraisal or appraiser was front and center.  One such case was the Estate of Richmond v. Commissioner, (T.C. Memo 2014-26, 2014).  The Richmond court excluded a valuation prepared in connection with the preparation and filing of the decedent’s Form 706 partly because it was prepared by a non-(valuation) credentialed CPA.  The court was also critical of the fact that the valuation attached to the Form 706 was an unsigned, marked up, draft version of the valuation.  The exact particulars of the Richmond case are beyond the scope of this article.  The point I intend to make is that there is a great deal of case law out there that can illustrate (to your clients) the importance of retaining a qualified appraiser to perform the valuation of their business.  In many instances the low-cost provider of valuation services cannot make the same claim.

 

In closing, I believe a competitive positioning strategy is one that provides transparency as to what exactly it is your client is purchasing and communicates the requirement of the engagement (in terms of regulations and standards) as opposed to competing on price alone.  Once my client understands the valuation process, from beginning to end, they are willing to expend the necessary resources for the assurance that the job is performed correctly and by the correct personnel.

Peter Agrapides, MBA, CVA is principal of Western Valuation Advisors. He has prepared numerous valuations of companies, partnerships, and professional practices. Mr. Agrapides is an instructor for NACVA continuing education courses conducted throughout the country, and makes regular presentations to professional trade groups on business and estate valuation. He is the publisher of the Case Law Corner article featured in the bi-monthly issues of The Value Examiner, the professional trade journal of NACVA.
Mr. Agrapides can be reached at panayotiagra@yahoo.com or by telephone at (801) 273-1000.