Reporting your business valuation – what USPAP Standard 10 has to say
The USPAP standards, published by the Appraisal Foundation, cover every element of valuation for real, personal, and business properties. When it comes to reporting your business valuation results, it’s worth consulting Standard 10.
The Standard does not dictate the choice of form, format or style in compiling valuation reports. This is left to you as an author. The important point is the content. This makes sense as business appraisals address a wide range of audiences and situations, each with its own preferences.
To comply with the USPAP Standard 10, your report should state clearly all the assumptions, special considerations, and sources of information you have used in conducting your business valuation. The idea is that your intended readers should have enough to understand how you came up with your conclusions.
Appraisal and Restricted Appraisal report options
The latest Standard 10 makes a distinction between two major options: an Appraisal Report and a Restricted Appraisal Report. The latter is only intended for the client. Whenever other parties are going to be reading the report, the Standard 10 requires that you follow the more general Appraisal Report option.
The key difference is the depth and type of information you provide in your report. It is one thing to create a valuation just for your client, who is very familiar with the company. You can assume a level of understanding of the business specifics that is not available to outsiders. For example, a lender or investor looking to put money into your client’s company would likely require a lot more disclosure to make up their mind.
Avoid one-size-fits-all boilerplate reports!
If you do prepare a full blown Appraisal Report, be sure to indicate who the intended readers are. Everyone’s needs for information are different and a ‘one-size-fits-all’ does not work in business valuation.
Elements of USPAP Standard 10 compliant appraisal report
The key elements you need to include in a standard-compliant report are these:
- Identify the client and any other recipients of the report.
- State the purpose of the business valuation.
- Discuss what is being valued, such as business assets included in your analysis.
- State if the valuation is done on a controlling interest basis.
- Indicate if there is any limitation as to the marketability of business assets.
- Mention what standard and premise of business value you are using in your work.
- State the date of your appraisal and the reporting date, if these are different.
- Outline the scope of your analysis, including the sources of information researched and used.
- Describe the approaches and methods used for calculation of business value and explain how you reached your value conclusion.
- Explain any unusual circumstances and conditions that influenced your valuation.
Use all three valuation approaches
A USPAP Standard compliant valuation should use all three valuation approaches. That is to say, your analysis should look at business value from the Asset, Income and Market perspectives. If you decide to omit any of these major approaches, you should explain it in your report.
For example, you may be appraising a pioneering technology company that has no equals in the marketplace. It may be reasonable to forgo the use of the market approach methods as no reliable comparables are available.
Don’t forget to sign your report and mention anyone else who may have helped in your valuation. Clearly state the scope and limitations of your analysis so that your readers know what to expect. Your business appraisal report is the finished work product and represents the quality of your work.