1. What is a business valuation?
- A business valuation is the determination of the value of a business enterprise, or an interest therein.
2. What is a CBV?
- CBV is the professional designation used by Chartered Business Valuators performing valuation services in Canada. All individuals using the CBV designation are required to conform to the professional standards, guidelines and ethical conduct established and regulated by the Canadian Institute of Chartered Business Valuators (CICBV). CBVs provide business valuation services for many purposes including (but not restricted to) mergers and acquisitions, commercial dispute resolution, estate and income tax planning, public securities, management buy-outs, corporate reorganizations, marital disputes and expropriations.
3. Are CBVs recognized internationally?
- Currently, there is no international body of business valuators and there are only a few countries that have developed business valuation standards. As such, there is no formal recognition of a CBV on the global scene. The United States has a number of valuation and appraisal bodies, among which the American Society of Appraisers (ASA) is the most closely linked to the Canadian Institute of Chartered Business Valuators (CICBV). The CICBV is playing a leading role currently in the development of the International Institute of Business Valuers (IIBV). The CICBV’s model that includes education and regulation of professional standards and ethical conduct is prominent for the foundation of the IIBV.
4. How do I choose a business valuator?
- In choosing a business valuator, consideration should be given to the practitioner’s credentials and experience. The purpose of the valuation often will dictate the type and/or level of experience required by the business valuator. For example, experience in court may be an asset in certain litigation assignments or experience in valuing public securities would be an asset in preparing a fairness opinion. The type of industry could require specific industry knowledge. However, many CBVs have experience across a broad number of industries.
5. How much does a business valuation cost?
- There is no standard cost for a business valuation. The cost is dependant on the amount of time required to complete the assignment and the hourly rate charged by the business valuator. The main factors that determine the amount of time required are the type of report required (see FAQ #10) and the size and complexity of the company or corporate structure.
6. Why is a business valuation required?
- A business valuation may be required for a proposed transaction of a business enterprise. Also, a business valuation may be required in situations where there is no actual transaction (referred to as a ‘notional’ valuation). These situations include commercial dispute resolution, estate and income tax planning, public securities, management buy-outs, corporate reorganizations, marital disputes and expropriations. An important business valuation principle is that for a notional valuation, the lack of an actual transaction does not preclude the determination of the value of the business enterprise, or an interest therein.
7. What is involved in having a business valuation prepared?
A business valuation prepared by a CBV typically involves a number of steps to fulfill the professional standards of the CICBV, as follows:
- a) Initial interview with the business owner and/or management
- b) Engagement letter signed by the client
- c) Compilation of information for the assignment
- d) Initial review and analysis of the information
- e) Research of the industry, transactions, etc. as appropriate
- f) Follow-up questions and possibly additional interviews
- g) Preparation of a draft report
- h) Comments and discussion with the business owner/management
- i) Representation letter signed by the client
- j) Release of final report
8. How long does it take to complete a business valuation?
- The duration of the business valuation process typically is 3 to 6 weeks. The length of time is affected by the type of report required, size and complexity of the business enterprise(s) and the availability of required information.
9. How long does the value conclusion remain in effect?
- One of the primary business valuation principles is that the business valuation is at a point in time. The value conclusion is not static and is affected by many factors, both internal and external to the business, including the general economy, the particular industry, the earnings power of the business enterprise, the management team, the availability and access to capital, etc. The length of time that a value conclusion remains relevant is dependent on the degree to which the particular business enterprise is affected by the internal and external factors.
10. What type of valuation reports are there?
- Under the Standards of the CICBV, there are three types of valuation reports: a) comprehensive; b) estimate; and c) calculation. The conclusions reported therein differ by the level of assurance provided and the extent of analysis, investigation and corroboration performed by the business valuator, with a comprehensive valuation report providing the highest level of assurance and the calculation valuation report providing the lowest. The breadth of work performed by the business valuator does not differ for the three types of reports, only the depth of analysis, investigation and independent corroboration.
11. Do business valuators deal only in particular industries?
- Typically, business valuators deal with a broad range of industries since the purpose of the valuation is usually not industry specific. Certain industries such as mining and oil and gas require certain industry expertise so there can be some industry specialization.