{title} icon

Articles From Lumsden McCormick

Not All Experts Are Created Equal

The COVID-19 pandemic and the possibility of unfavorable changes to the capital gains tax rates have led many business owners to contemplate selling their interests in 2021. As the business valuation discipline has grown, there have been reports of unscrupulous individuals posing as valuation experts who have neither the training nor experience to provide reliable opinions of value.

Before hiring a business valuation expert, it's important to get referrals from trusted sources and conduct due diligence on the qualifications and reputation of the individual and his or her firm.

Referral Sources

Valuation scams have been reported across the country. For example, some owners, after providing a retainer, never hear back from the "valuation" firm. In other cases, the owners make important business decisions based on inaccurate valuation advice. So, how do you evaluate whether an individual is a legitimate business valuation professional?

First and foremost, ask for a referral from an advisor that you already know and trust, such as your attorney, CPA, or banker. Often, professional service providers have worked together on similar projects for other clients and can refer someone from your local area.

Rule of Three

Don't automatically go with the first name you're given — or the lowest cost provider. Take time to understand each expert's qualifications. It's a good idea to consider at least three candidates and create a matrix of qualifications, including:

  • Years of business valuation and M&A experience,
  • Federal and state tax law knowledge,
  • Specialization in the company's industry, and
  • Business valuation accreditation(s).
  • The following organizations offer a professional designation in business valuation:
  • The American Institute of Certified Public Accountants (AICPA),
  • The American Society of Appraisers (ASA),
  • The Canadian Institute of Chartered Business Valuators (CICVA), and
  • The National Association of Certified Valuation Analysts (NACVA).

Be sure to ask whether the candidates have completed all the requisite technical and ethical requirements to officially use the organization's designation — or whether they're still working on a professional designation. Moreover, verify whether the expert is up-to-date on the organization's continuing education requirements.

In addition to conducting interviews when selecting your expert, ask for each candidate's marketing materials and a curriculum vitae. Experienced experts will have these items on hand, and printed material can help you compare the expert's qualifications side-by-side with others. Also review their firms' websites, including any white papers or newsletters the experts have posted.

Additional Considerations

Look beyond an expert's technical competence. You'll be sharing confidential information with this person. So, it's important to trust each other and communicate effectively. Even if all the valuation candidates you interview are well qualified, you'll probably find that you connect better with one expert on a personal level than the others.

Finally, search for the name of the individual and his or her firm on the Better Business Bureau website. Then enter the name of the individual (and his or her firm) along with the words "complaint" and "scam" on your favorite search engine. If anything suspicious turns up, ask the expert for an explanation. A legitimate expert could have been targeted by unscrupulous competitors with false complaints.

Seller Sam and the Fictitious Valuation Scam

Sam, the owner of a proprietary fitness center, received an email from a valuation firm offering a free consultation about selling her business. Sam set up a virtual meeting in early January. Given the expected tax law changes under the Biden Administration and ongoing operational challenges during the COVID-19 pandemic, she decided that it was a good time to sell her business.

After an upbeat Zoom call, Sam verbally agreed to give the valuation firm a $7,500 upfront retainer to value the fitness center and start vetting potential buyers. She also sent the firm copies of the company's tax returns and financial statements from the last three years.

As of March 1, Sam hadn't heard back from the so-called "valuator," and he refused to return her calls. So, she contacted her attorney who had previously worked with credentialed business valuation experts. He was immediately suspicious for two reasons:

1. The fee seemed high for a business with less than $1 million in annual revenue — especially for a valuation report that was planned for internal use only. A detailed written report typically isn't necessary when you're merely contemplating a private sale.

2. The valuation firm's website was vague. It didn't list the names of the owners or any credentials held by professionals on staff.

The attorney advised Sam that she could file a lawsuit but doing so could be an uphill battle. Sam didn't have a signed contract from the valuation firm — she'd simply made an oral agreement, which would be difficult to legally enforce.  

Put It in Writing

Once you've picked the expert that's right for you, be sure to enter into a formal contract for the valuation services. However, contact your attorney before signing the engagement letter. He or she can review it to ensure all the bases have been covered.

Not All Experts Are Created Equal

for more information

As a manager, Ben’s responsibilities include the valuation of businesses, business interests, and intangible assets for purposes of financial reporting, transaction advisory, and tax planning and compliance. Additionally, Ben’s role includes performance of various forensic accounting procedures, as agreed upon with clients. Ben’s prior experience includes performing assurance services for publicly traded companies within the aerospace and manufacturing industries, as well as large private companies and the gaming industry. He also has experience in testing and evaluating internal controls over financial reporting.


Comprehensive. Proactive. Accessible.
How Can We Help?