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Keeping Your Balance: Jointly retained business valuations


James P. Schnell

Have you experienced a scenario which, in hind-sight, may have been a productive approach vs. two “hired guns” each exploiting the outer edges of established case law or evolving/accepted industry positions for their specific causes?

Seemingly, many attorneys and mediators around the country have and continue to attempt this alternative solution. Whether it be costs, length of process, ambiguity of specific points of difference or frustration communicated from the judge either during or up front in a case, we are seeing more scenarios develop where the jointly-retained valuator approach has become the primary mode of how to proceed vs. the “hired guns” approach.

The following will outline some tips on how to achieve success using a productive alternative approach for the valuation piece of your dispute or litigation engagement:

Clear communication and correspondence — Being selected as an independent business valuator and behaving as an independent business valuator; for some these are two different things. Establishing up front that all correspondence will be shared with both parties at all times is an easy way to prevent erosion of confidence in the objectivity of the business valuator. Being disciplined in this piece of a process is a key ingredient to the success of a jointly retained business valuator.

Engagement letter and billing arrangements — In these cases it is best practice to draft, issue and receive a jointly approved engagement letter for the valuation report project. In most situations, one party will be paying or providing the funds for the project. Establishing agreed-upon payment steps and time frames will help to minimize or eliminate administrative interruptions in the project.

It is very common to utilize a retainer along with a final payment due post-review but prior to issuance of final product. These best practice steps serve to help maintain full valuator objectivity and suppress any perception that a result or outcome may have been fee motivated.

Preparation steps — Needs lists, to-do lists and potential project interview candidates should either be requested or supplied as early in the process as possible. In most cases the process of undergoing a business valuation is very foreign to both parties (and sometimes their attorneys as well). It can easily lead to unnecessary skepticism or paranoia over the genuine independence of the results.

Draft versions of reports — As every valuation scenario will encompass issues unique to that situation as well, as it may be nearly impossible to understand every intangible aspect of a company during even an arduous process, it is always best practice to request that draft versions of both the calculations and report narrative be supplied for thorough review and comprehension for each party.

Comment period — Subsequent to issuing a draft report, it is important that both parties understand the agreed-upon length of time for a comment period. This is the time period where the “speak now or forever hold your peace” aspect of preparing to issue the final business valuation report comes into play. It is imperative that both sides use this period to question, comment, provide feedback and possibly unearth new or relevant information regarding any aspect of the proposed valuation results.

Finally, there is the overriding imperative of actually hiring the correct professional. The ultimate key to success in this valuation engagement approach is for each party achieves the best level of comfort and confidence in their choice of valuator. As a part of this process, please seek to address the intangibles of the valuator’s approach as well as his/her technical backgrounds and established certifications/credentials.

This may translate into assessing the professionalism, timeliness, and experience in this type of situation of the valuator candidates to ensure solid execution within the administrative side of the project.

James P. Schnell, CPA/ABV, CVA, is a tax and business valuation partner with Mengel, Metzger, Barr & Co. LLP. He may be reached at jschnell@mmb-co.com or (585) 423-1860.

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