Conclusion of Value vs. Calculation of Value: Which Service Offering is Right for Me?
In business valuation, there are two levels of service offerings: a conclusion of value and a calculation of value. In this article, I will explain the differences between these two service offerings and hopefully help you better understand which is the best service offering for your needs.
Per the AICPA’s VS Section 100 Statements on Standards for Valuation Services (“SSVS”) a conclusion of value has been performed when:
“(1) the engagement calls for the valuation analyst to estimate the value of a subject interest and (2) the valuation analyst estimates the value and is free to apply the valuation approaches and methods he or she deems appropriate in the circumstances.”
In comparison, the SSVS states a calculation of value has been performed when:
“(1) the valuation analyst and the client agree on the valuation approaches and methods the valuation analyst will use and the extent of procedures the valuation analyst will perform in the process of calculating the value of a subject interest (these procedures will be more limited than those of a valuation engagement.) and (2) the valuation analyst calculates the value in compliance with the agreement”
Based on these definitions, the main difference between a conclusion of value and a calculation of value lies in the approaches and methods utilized by the valuation expert in determining value. In a conclusion of value engagement, the valuation expert uses their professional judgement in determining the methods and approaches to use in their analysis. However, all approaches and methods must be considered in the expert’s analysis. In a calculation of value engagement, the approaches and methods to be used by the valuation expert in determining value are agreed upon between the expert and the client prior to the start of the engagement. This difference signifies that a conclusion of value engagement is usually more intensive and costly than a calculation of value engagement.
So, which service offering is right for you? Well, this depends on your intended use of the valuation. If the valuation will be used for court or to attach to a gift or estate tax return being sent to the IRS, you will need a conclusion of value engagement. This is because a conclusion of value is more conclusive than a calculation of value engagement and thus, is necessary for use in court or to send to the IRS. However, there are several scenarios where a calculation of value engagement may be a better and less expensive option than a conclusion of value engagement. I have listed a few of these scenarios below:
- Upper-level management or a business owner is looking to determine the value of their business for management strategy, growth planning, exit planning, or stock option plan introduction purposes
- A buyer interested in acquiring a business that is looking for a value to negotiate a purchase price or help them better understand the valuation process
- A shareholder buy-out that has been agreed between all parties that a conclusion of value is unnecessary
- An attorney that needs consulting regarding a case or requires just a preliminary value to help them better strategize for their case and better serve their clients. As we will note below, this calculation of value could be upgraded to a conclusion of value if necessary
In addition to our conclusion of value service offerings at FAZ, we have developed a Strategic Business Valuation (“SBV”) that leads to a calculation of value and is designed to offer our clients the best value for your money for those that only require a calculation of value engagement. Another perk of the SBV is that it can be easily upgraded to a conclusion of value engagement if required without having to redo any of the work completed in the calculation of value engagement.
For those interested in additional information regarding FAZ’s valuation services please reach out to either Stephen Ferraro at 518-288-2136 or David Consigli at 508-330-4513.