Bad discount data: Is that the next BV ‘black box’?
“The data we use for discounts and premiums is just atrocious,” according to Gary Trugman (Trugman Valuation Associates), who spoke on an “Ask the Expert” panel at last week’s sold-out AICPA National BV Conference in Austin. “We are making judgments on bad data. And the judges are getting smarter,” he warned—which means that business appraisals are becoming more vulnerable to an “onslaught” of malpractice suits. “Try to get the value right the first time,” he advised, “so [you] don’t have to whack it with discounts.”
Fellow expert-panelist Chris Mercer (Mercer Capital) agreed. “Every time you rely on market studies and don’t understand where the data came from—or what it means,” you’ll expose yourself to attacks on your credibility and your conclusions. And Shannon Pratt (Shannon Pratt Valuations) adds, “I’m amazed that some practitioners still use the average of [market] studies” for determination of valuation discounts. I agree with Chris and Gary,” he said —which may have been the biggest news of the conference, a perfect tri-partite expert accord.
ABV’s grow by 25% in 2006
The AICPA confab attracted more than 900 BV specialists to Austin, reflecting the profession’s continuing expansion. “The number of CPAs holding the Accredited in Business Valuation (ABV) credential grew about 25% over the past year, to approximately 2,300,” Mike Crain (Financial Valuation Group) announced over lunch. As Chair of the AICPA BV Committee, Crain also reported on the status of the AICPA’s move from the New York area to Durham, S.C. (almost complete) and its talks with the ASA about planning another record-breaking joint valuation conference in the near future (ongoing). Their previous joint effort, in Las Vegas last November, sold out to a crowd of over 1600 attendees.
But what about the new ABV ‘sponsor program’? Crain also updated the new program for the ABV credential, which began in November of this year and will run until May 15, 2007. The ABV credential is being offered to CPAs who hold other recognized valuation credentials, such as CBA, CFA, and CVA; and who have at least 1000 hours of valuation experience, have passed a valuation exam, and have ABV sponsors. Supporters compare it to state bar associations that allow experienced attorneys to “waive” licensing requirements when moving into new jurisdictions, including having to pass the local bar exam.
But detractors say that the new program dilutes the credibility of the ABV. For more information on the program, click here. To register your confidential opinion, write the BVWire editor.
New inductee to the BV Hall of Fame
Hint: He once served restaurant meals to the likes of Elvis Presley and the Rolling Stones. He has been a radio DJ and played guitar in a rock ‘n roll band. And he's also “one of the most passionate people in the BV community,” according to Crain, “who freely gives his time to the profession at the expense” of personal time. He has been a leader in the development of AICPA educational courses, has taught over ten different AICPA group study courses in over twenty-five cities, has been published “dozens” of times, and speaks frequently on BV broadcasts (including numerous appearances on BVR’s telephone conferences).
If you haven’t guessed by now, the latest member of the AICPA BV Hall of Fame is none other than Ron Seigneur (Seigneur, Gustafson, & Knight, LLP) www.sgkllp.com, who also happens to be the latest addition to the editorial advisory board of the Business Valuation Update™. Congratulations, Ron!
What will kill a business appraiser’s credibility?
It’s not necessarily poor data or insufficient valuation analysis and support; it’s the appearance of a conflict of interest, says Vice Chancellor Donald F. Parsons, one of five currently presiding in the Delaware Chancery Court—and one of the biggest draws at the AICPA conference. “If you’re too cozy with the side you’re testifying for, we’re going to be skeptical,” he said, citing examples of the BV expert whose wife was an attorney on a case; or another who’d done consulting work for the company at issue.
And what are the Vice Chancellor's “Top Ten” best appraisal practices in front of the Delaware Chancery—which one AICPA attendee likened to the BV equivalent of the U.S. Supreme Court? His list appears in the forthcoming January issue of the BVU; click here for your free copy of the "Top Ten."
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The IMD: a ‘doctrinal weed’ in Delaware appraisal law
In his presentation, V.C. Parsons also alluded to the importance of understanding and developing a position on the Implicit Minority Discount, (IMD). At conference-time, three of the five Vice Chancellors were attending an all-day educational seminar on the IMD, which a November academic working paper calls a “doctrinal weed” in the landscape of Delaware appraisal actions. Whatever your opinion on the IMD, Parson urges BV appraisers to be prepared to defend it. For a copy of the academic’s current take on the IMD, click here.
Look at what BVR firm economic data can do for you
“We are looking to hire a college grad with two years or so of relevant experience, not necessarily a CPA,” a BVR subscriber writes, “and are thinking in the $40,000 range.” Could data from the soon-to-be-released 2007 Business Valuation Firm Economics & Best Practices Survey confirm salary levels for a new financial analyst in the Midwest region (excluding Chicago)?
What we found: Overall, the median entry-level salary for ALL BV firms is just about $42,000. In addition, about 55% of those firms give an annual bonus of $3,650, on average. Drilling down to BV firms in the Midwest (excluding Illinois), the median entry salary is still $40,000, and the average slightly higher, at $41,191. Our conclusion: A starting salary in the $40K to $42K range would be reasonable, particularly if it includes a bonus.
This is just a small example of how BV professionals can make the data work in their 2007 hiring, budgeting, and practice management plans. To pre-order your copy of BVR’s full report, click here.
ValuSource launches RMA Valuation Edition
Just last month ValuSource announced its exclusive agreement with the Risk Management Association (RMA) to produce a Valuation Edition of RMA’s Annual Statement Studies™. Available this January, the Valuation Edition CD contains benchmarking ratios (ten decile points for each ratio and a standard deviation); as well as dollar ($) and percentage (%) presentation of income and balance sheets, Excel® export capability, and more. For more information, visit valusourcesoftware.com.
Also, business appraisers need additional sources of industry risk information when developing discounts, and should not rely on RMA alone. For information on Integra, market-leader (and leading RMA competitor), go to http://web.integra.com/index.html. The Integra 5-Year Industry Data Reports are also available at our website—click here to read more about them.
Grant Thornton named to Working Mothers' Top 100
For the first time, Grant Thornton LLP has been named one of the top 100 best companies for working mothers, according to this month’s issue of Working Mothers. It was also the first time that this national financial and BV services firm applied for the honor, citing among other features its “Flexible Work Arrangement Policy,” which enables all employees to take advantage of flex-time, telecommuting, compressed or reduced workweek—or some combination. Grant Thornton also boasts a wellness initiative and work-life integration program; for more information on the firm’s recent honor, click here.
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