Valuation is hot today. “The demand for business valuation services by CPAs has increased tremendously in recent years, especially from owners of family businesses who are concerned with estate and gift tax issues and succession planning, those in divorce settlements, or those who need guidance on selling their business or buying a new one,” says Van Conway, president of Conway MacKenzie & Dunleavy, a financial and management consulting firm located in Birmingham, Mich.
  So, then, with this in mind, what are the various types of work available, and how does the CPA go about obtaining them?

Different Types
Divorce is certainly considered near or at the top of any chart when it comes to valuation work. With the divorce rate still running at about 50 percent, CPAs are finding themselves more and more enmeshed in putting a value on a particular client’s wealth.
  Gary Gomola, managing partner of Gomola & DiBella, an accounting firm in Middletown, Conn., says that there are a lot of people who need to do valuations but simply don’t. “Generally, people will only do valuations when they are forced to and in divorce, they are forced to. I try to do some with people before they need it so that they have it in hand but that’s a hard sell. Almost half of the valuations are divorce niche ones.”
  In Pittsburgh, Pa., Alex Kindler, management consulting services partner in the accounting firm of Horovitz, Rudoy & Roteman, also sees a lot of divorce/litigation support work. In addition, the firm has a heavy concentration on valuation of family limited partnerships. “We’re one of the more active firms in this niche.”
  Of course, following closely on the heels of divorce work is litigation support which to many practitioners is the logical extension of matrimonial work. Michael Crain, partner in Fort Lauderdale, Fla.-based accountants Peed, Koross, Finkelstein & Crain, says that about half of the firm’s revenuers are related to valuation and litigation, making it one of the largest valuation and litigation practices in South Florida. Most of the valuation work, he points out, is generated from litigation.
  Other reasons are tax purposes and mergers and acquisitions. The firm also does a fair amount of medical practice valuations because it has a sizeable health care consulting practice. “We have 10 people here doing nothing but valuations and litigation out of 25 people in the firm,” explains Crain. “I do a lot in the business appraisal, damaged analysis, and investigative accounting areas.” He is the treasurer of the National Litigation Support Services Association, a not-for-profit association of CPA firms.
  A number of CPAs try and steer clear of divorce and litigation support as being too time-consuming. Brian Sullivan, a sole practitioner in San Mateo, Calif., says that he has tried to stay away from that area as best as he can. Instead, he concentrates on his succession planning activities, branching out into gifts and business sales or purchase negotiations and on into projections, buy/sell agreements, life insurance adequacy, and ESOP.
  According to Sullivan, a privately held business often represents the largest family asset, impacting gifting programs and even settlements in divorce. In addition, billions in estate taxes are tied to the value of these businesses. “Valuation plays a vital role as the rise in small business mergers and acquisitions continues.”
  For that matter, Gary Davidson, managing partner of the Texas-based accounting firm of Davidson, Freedle, Espenhover and Overby, says that he sees plenty of family partnerships regarding ranch or farm properties. “Basically, we are noticing that as the current generation dies off, you have two, three, four kids who inherit the ranch with one who stays there, works it, and wants to continue doing so. The others are off, perhaps as doctors, lawyers, or moving out-of-state with no interest in the property other than an ownership one. So, there has to be a vehicle to keep them intact instead of the property being sold against the will of the parent.”
  He explains that the family partnership fits well because the property is kept after the parents are gone, and the one son who wants to continue to manage it does so while it allows the other two children, even though they can’t dispose of it, to at least share in the profits. “In effect, we get a number of family partnerships to facilitate that kind of family situation and, of course, they all need valuations.”
  Franklyn Lee, managing partner of Weiss & Company, accountants in Northfield, Ill., points out that estate planning, in general, is the driving factor in the valuations he has done. “I have not limited my work except that I have stayed away from ESOP because it requires such highly specialized training and experience. I started with the IRS in the Chicago area which is how I first got exposed to this kind of valuation work that relied so heavily on tax issues.”
  Alex Levin, equity member in the accounting firm of Naden/Lean of Timonium, Md., notes that most of his valuations are also tax driven: “For example, changing from a C to an S corp where you have to value the built in gains at the date of the transfer.”
  Some firms have set up comprehensive valuation practices. Robert Gray, with Mann Frankfort Stein & Lipp in Houston, Texas, is a large, regional accounting firm that performs a variety of valuations throughout the country. The firm’s litigation and business valuation group has 22 professionals, 10 of whom are involved in valuations and all have the various ABV and CVA certifications.
  Says, Gray, “We do pretty much the whole gamut of business valuations for many purposes. We don’t have any special niche and our reporting runs from litigation to tax to mergers and acquisitions to specific buy/sell agreements. It’s the whole spectrum.”
  Scott Bush, of Soukup, Bush & Associates, accountants in Fort Collins, Colo., also does quite a bit across the board. “We handle mergers and acquisitions, estates, litigation support, divorce, and in all sorts of different industries. We do focus a lot with professions such as doctors, lawyers, and orthodontists, as well as service industries, manufacturing and retailing.”
  Stanley Heller, vice president of the accounting firm of Peare & Heller in Hauppauge, N.Y., says he considers himself a generalist. He appraises the value of a business for estate and gifting purposes, damage calculation, mergers and acquisitions, dissenting shareholder issues, matrimonial dissolution, and litigation matters.

Referrals by Professionals
“Most of the work I get is from other CPAs and attorneys in that arena,” says Sullivan. “I pick up a referral from another CPA firm that doesn’t have my expertise or where there is a conflict of interest. For instance, on an ESOP plan, if the existing accountant is doing the financial work, then the Department of Labor will claim that there is an existing conflict for the practitioner. I serve that void because I am a friendly CPA to others and they don’t feel threatened that I will come in and steal their clients.”
  Gomola concurs. He points out that clients today are coming from attorneys and other accountants who don’t specialize in any specific area. “I don’t have to do heavy marketing. It’s simply not been needed. I am well known in this field and people, including other accountants, trust me. They know I won’t take their clients.”
  Gray says that he doesn’t really have one source of engagement referrals. “We do have a pretty strong tie to the legal community that will make a recommendation especially for our valuation work in the litigation support area. We also have a strong tax department and through its reputation, we obtain considerable valuation work in tax-based areas.”
  Crain and Heller also note that they get most of their clients from lawyers, with CPAs number two. For Lee, it’s how he evolved into his valuation work. “It grew out of my long-standing relationship with law firms here in Chicago. In effect, it’s an extension of our work.”
  Davidson says that he gets a lot of referrals from estate planning attorneys in the area and that makes up for a large portion of his valuations. “Of course, I am not a big fan of doing divorce work and inasmuch as most of the referrals are coming from attorneys, you can’t easily turn certain work away. We do a fair amount of valuations on privately held businesses in the divorce arena.”
  For Kindler, the road is a bit wider with referrals coming from a number of different sources. “We do valuations for all kinds of purposes but there are people who regard me as the person to call when it’s time to value professional practices such as doctors and lawyers. I receive a lot of calls from those who are doing business valuations and need help because I am on the National Association of Certified Valuation Analysts national certification board and am the current president of NACVA’s Pennsylvania chapter.”
  Levin has a different referral source. In addition to attorneys, he cites trade associations that have referred him a number of valuations.

Limited, But Targeted Marketing
Some practitioners do very little marketing while others go hog wild in trying to get their message across.
  Gomola produced a brochure that he sent to a broad-based audience of existing and potential clients, attorneys, other CPAs, financial institutions, relatives, and friends when he first started doing valuation work. He picked up a lot of business just from that one mailing.
  Gray’s firm sends out its Valuation Concepts, a quarterly publication that is intended to explain technical business valuation issues. These go to existing and prospective clients including referral sources such as attorneys and banks. The current issue has articles covering whether fair value should include a strategic premium, how to put a value on Internet companies, and how courts deal with business valuation.
  Gary Jones and Dirk Van Dyke, recently published The Business of Business Valuation (published by McGraw-Hill) that includes some tips for marketing the accountant’s business valuation practice:

• Develop valuation products targeted to appeal to entry-level and middle-market businesses.
• Establish a market presence through targeted direct-mail advertising to CFOs and CEOs in the primary service area.
• Expand customer awareness of new valuation products through a newsletter and structured calling program.
• Increase interactive direct sales through greater use of the Web, augmented by heavy Web site awareness programs.

Heller explains that his firm does significant marketing such as print ads, with separate mailings to attorneys. “We try to create a presence in the minds of the legal profession.”
  Levin, who heads up the firm’s NL Newsletter Publishing Consultants niche, and who is the adviser to the $2 billion consumer and business-to-business subscription newsletter publishing industry representing clients across the U.S. and Canada, relies a great deal on his own reputation to help send business his way.

Hourly and Fixed Fees
The billing and what is being charged is fairly structured. For example, Gomola says that in divorce, the billing comes solely from him. Crain points out that he bills separately, too. “If it is litigation related it’s on an hourly basis, and it’s typically open ended because in addition to the valuation we may have to do a lot of forensic accounting to make sure the financial statements are correct. There is considerably more scrutiny in litigation. If it is related to tax, the client pretty much wants to know what it will cost. For mergers and acquisitions, it’s open ended but the client wants an estimate of what the fees are because it is on an hourly basis, and many times these valuation services will expand into other engagements such as due diligence and tax consulting.”
  Sullivan sets his own fees within a particular range. “I look at a fixed fee arrangement but I keep it in the $5,000 to $7,500 area for a valuation of a closely held business.”
  On matrimonial work, Heller fixes his fees up front unless the client wants forensic work done and then it’s on time. Kindler explains that in dealing with other professionals, the fee is billed on an hourly basis. “Although it’s not a fixed fee, I can quote a price that I will pretty much come in at, depending on whether anything extraordinary happens. Of course, in divorce cases, you can never go the fixed fee route. It must be on an hourly basis. My billing rate is in the $150-$175 range.”
  Davidson notes that his firm has experimented with all sorts of fee arrangements such as a straight hourly rate or a fixed fee arrangement. “With most family partnership work and particularly if I have worked with the attorney before, the client is more comfortable with the fixed fee because of legal and start-up costs. Keep in mind that they are trying to get a handle on costs. We can give them a pretty good fixed fee. However, with divorce or litigation, it is strictly by the clock. I bill litigation work at $160 an hour.”
  Lee says that all of his work is primarily on a per hour basis although he tries to gauge at the front end the amount of work anticipated. He gets $190 an hour. Bush budgets the project based on the different pieces and phases of the valuation but, again, on his hourly rate of $150. Clearly, if it’s a divorce, he goes completely on a per hour basis but with physicians it is on a per project arrangement. Heller, too, works on a flat fee up to trial with forensic work billed separately. “We bill $230 an hour up to trial, and $250 an hour thereafter.”
  Then there are companies that principally do valuation work, and nothing else. Business Valuations & Strategies in Danville, Pa., was founded by CPA David Coffman three years ago for the express purpose of providing business valuation and small business advisory services.
  It provides valuation related services with full or limited scope. A full-scope valuation results in a detailed written report that provides a specific opinion of value. It furnishes a description of the history and nature of the business, an analysis of economic and industry conditions, a financial analysis of the business, an explanation of the valuation approach, and methodologies used to determine the opinion of value plus any other relevant materials or documents. The typical fee for a small business runs between $2,500 to $5,000.
  A limited-scope valuation results in a summary report that provides what is called an “Estimate of Value.” It is primarily used for internal purposes such as estate and financial planning. Here the fee is around $1,000 for a small business.

Who Does the Work?
How many accountants would admit that they do the work themselves and do not farm it out to third parties?
  Gomola says he does all the work himself. “I don’t send it anywhere. Of course, what I am hoping to do is to get my staff person to do even more and to eventually get her a CVA certification so that she will be able to handle more of the work. I will need more help, no question about that.” Gray, Kindler, Davidson, Lee, and Bush note that their firms also do everything themselves and don’t outsource.
  A number of companies have popped up that will do the actual valuation report for the practitioner such as Virtual Advisors based in Atlanta, Ga.
  It serves as an accounting firm’s back office for a valuation and M&A practice. The accountant collects all of the information required to perform the valuations. This involves an online questionnaire of 75 questions. It then transmits the information to Virtual Advisors over a secure Web site line.
  The company searches the leading databases containing the financial results, ratios, and valuation multiples for more than 13,000 companies, as well as completed merger-and-acquisition transactions of all sizes. Analysts down load the data on the subject company as well as the general economic and industry-specific market information, then compile the data and apply a judgment to determine the company’s value.
  Reports are usually sent out within five business days of receiving a completed due diligence questionnaire. The accountant then charges for the hours involved or sells the valuation at a mark-up to Virtual Advisor’s price.
  Sullivan has a different twist. Although he doesn’t farm work out and believes strongly in doing it himself, he does feel that CPAs should be in touch with other CPAs for review purposes. In this regard, he is trying to develop a peer review program in the California community. “I may have another accountant look at my report for an evaluation. It gives me a high level check as to what options I have available to me. I think a lot of sole practitioners fall short because they try to do it all themselves and miss some opportunities. I bring a lot more to the party. I have affiliations around the country and so I can tap into those sources. I think it’s important that we CPAs develop relationships with others who are doing a certain kind of valuation work and thereby create a forum to have work reviewed.”