This month I wrote about multiple and single Appraiser choice. My friend Ed Pratesi was nice enough to give me some of his thoughts, which I definitely respect due to his experience and training. Ed, thank you for this contribution.
Ed Pratesi wrote:
I read with interest your comments on Single Appraiser vs. Multiple Appraiser choices that owners have for a BSA. I agree in part with your assessment that the single appraiser choice is preferred but I do have a number of caveats and suggest that before the number of appraisers needed is secondary to choices made before this decision. Let me explain my thoughts:
Firstly, the choice of number of appraisers almost always works, whether one, two or the three step approach – except when it doesn’t!
Prior to the determination of the number of appraisers needed is preceded by what I refer to as the education process that a business appraiser must take the owners through in order to develop an agreement and a process that will likely be triggered when an unanticipated or unfortunate event has occurred.
In never ceases to amaze me that owners will spend money on creating a business plan, invest in physical assets and talent and not spend enough time on one of the most important events that will occur in their lives – either their exit or a partners exit. My complaint is not pointed at the owners but at the appraiser called in to initially called in to assist in the valuation.
My point simply is the an appraiser needs to explain the valuation process, the valuation methods used to value a business, the applicability or not of the methods to the company, a discussion of the definition of value – (for example fair market value or fair value, more on this in a later discussion), a complete discussion of adjustments that appraiser consider in the valuation process, and what discounts could apply and the reasons for application of discounts.
This part of the valuation process is more consultative and sets the framework for the conduct of an initial appraisal and of the work product. Finally, once the appraisal is complete a meeting to discuss the results and the process is essential and should be prefeaced with scenario planning should a provision of the BSA be triggered.
The goal is to get buy-in on the process not just the number!
I hope I have addressed part of the discussion of the number of appraisers – more to follow if desired…
Edward E. Pratesi, ASA, CM&AA, ABV, CVA
Managing Director | UHY Advisors N.E., LLC
6 Executive Drive, Farmington, CT 06032
D: 860 519 5648 | C: 860 558 0453 | F: 860 519 1982