Business owners may often wonder how much their business is worth, and more of them are turning to certified public accountants to find out. Business valuations are among the top niche services that are growing among CPA firms increasing their business, according to Accounting Today magazine.
The Jackson accounting firm of Smith, Turner, Reeves and The Koerber Company of Hattiesburg are among the firms in Mississippi seeing a rise in the number of business valuations they perform for clients.
Ralph Ross, senior tax partner with Smith, Turner, Reeves, lists the top three reasons clients request valuations — to settle estate and gift taxes, divorces and litigation.
“They’re also important in business transactions,” he says. “If a business is trying to bring in a new partner or new stockholders, or if someone leaves and is trying to determine what they should be paid, these are cases where valuations are most important. A few years ago, a law firm was splitting up, and one of the partners didn’t get what he thought he should get. We were asked to provide a valuation.”
Ross and James A. Koerber, principal in the Koerber Company, say the service is definitely increasing. Part of that increase may be due to changes in IRS laws regarding gift taxes. Valuations now must be attached to returns. They say more estate planning is created around valuations too.
“They’re not new but have become more prevalent in the last 10 years,” Ross says. “A lot of business owners want to know what their business is worth. The typical cost for a valuation is $5,000 to $15,000. Owners may not be willing to spend that much out of curiosity.”
Koerber says he rarely provides a valuation because of a client’s curiosity. “It’s usually for a specific purpose. It can be for litigation purposes or business transactions such as mergers and acquisitions, buy/sell agreements, employee stock ownership plans or to let all stockholders know the value of the company,” he says.
The time and cost of valuations done by The Koerber Company vary according to the size of the company being evaluated and the number of locations. “When someone calls requesting one, we give them a range on non-litigation issues,” he says. “It’s done on a project-by-project basis, and the range depends on many factors. We do them for all size companies and not just in Mississippi.”
He has seen tremendous growth in requests for business valuations in the past three to five years, and says part of that increase may be because his firm provides the service in several states. More demand for the service also stems from the boom in mergers and acquisitions along with new regulations and mandates on purchase price allocations, impairment testing and fair-value measurements.
“Growth in the demand for this service has been strong and should continue in the coming years,” he adds.
Koerber advises business owners to consider a valuation if they’re getting older and had the business for a long time. In those cases, it’s good to know what the business is worth. Valuations are also helpful with buy/sell agreements for businesses with multiple shareholders.
“If an owner is selling a business, with a valuation he can be better prepared when offers are made,” he says. “I advise getting valuations only for specific needs. There are enough real reasons that business owners might need to know the value of their business.”
With buy/sell agreements, Ross says business owners better hope the real worth is near the amount in the agreement because the IRS may not recognize what’s in the agreement.
Ross’ accounting firm provides business valuations as part of a long list of client services. The Koerber Company, however, considers itself a niche accounting firm, which means it formed to provide specific services, one of which is business valuations. It’s a trend sometimes referred to as boutique accounting, but Koerber prefers to be called a niche firm.
“Ninety percent of our work is valuations and litigation support,” he says. “We were doing tax returns but became so busy with valuations and litigations that we sold the tax part of our practice in January of this year. Our business comes from lawyers and other CPAs.”
Contact MBJ contributing writer Lynn Lofton at firstname.lastname@example.org.