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Can A CPA Do A Business Valuation?

Can A CPA Do A Business Valuation?

jeremiah grant
By - Jeremiah Grant
Last Updated - January 4th, 2024 1:09 AM
Jan 04

We all trust our CPAs (certified public accountants), and why wouldn’t we?

They help us do our taxes, manage our finances, and whatnot. 

In fact, In a recent survey of 1,000 small business owners, 86% of them consider their accountant a trusted advisor, even more than their family, friends, lawyers, and financial planners.

Now the question is, can they do more than that?

Can a CPA do a business valuation?

The easy answer to this question would be no. Your CPA cannot do a business valuation, and the reason is quite simple: they don’t have the right qualifications or the expertise required to do a business valuation.

Business valuation is done by a certified business appraiser; it does not fall under a CPA’s area of expertise.

In this blog, we will discuss the reasons why your CPA cannot effectively evaluate your business, what the difference is between a CPA and a business appraiser, and what expertise a business appraiser brings to the table.

Who Is A Certified Public Accountant (CPA)?

As the National Association of State Boards of Accountancy (NASBA) describes them, a Certified Public Accountant (CPA) is an accounting professional who meets the state licensing requirements through educational training, experience, and successfully passing the CPA Exam.

Now, in case you didn’t already know, CPAs are different from accountants.

The first difference between a CPA and an accountant is their qualification. As we said earlier, a CPA must pass the CPA exam and get their license to practice.

That isn’t the case with accountants. In fact, someone who does any kind of accounting work, major or minor, can call themselves an accountant.

That’s not all. CPAs must fulfill a minimum of 150 college credit hours for a CPA license, exceeding the standard 120 credits needed for a bachelor’s degree.

Aside from their qualifications, the kind of services a CPA and an accountant can provide are also different.

For starters, CPAs prepare audited financial statements to be filed with the Securities and Exchange Commission (SEC), conduct company audits, and represent you or your company in case you get audited by the IRS.

While accountants can also prepare your tax returns or conduct in-house audits, only CPAs are qualified to defend you in front of the IRS or conduct external audits or auditing of public companies.

Can a CPA Do a Business Valuation

No, a CPA cannot do a business valuation because they are not trained to do so.

However, if they have the right qualifications and prior experience, they just might be able to evaluate your business.

You might also like to read: Top 10 Reasons for Business Valuation in 2023

CPAs Vs. Business Appraisers

As we mentioned before, CPAs must pass the CPA exam with flying colors and meet their state’s requirements to get their license.

On the other hand, a business appraiser needs various accreditations offered by different business valuation accreditation organizations to get qualified and get their license.

Here are some qualifications that a business appraiser should carry in order to evaluate your business:  

  • American Society of Appraisers (ASA) – Established in 1981, ASA is a highly acknowledged program for business appraisers, providing two accreditation levels: accredited member and accredited senior appraiser.
  • National Association of Business Certified Valuation Analysts (NACVA) – Founded in 1991, NACVA provides two programs for business appraisal specialists: Certified Valuation Analyst and Accredited Valuation Analyst. 
  • Institute of Business Appraisers (IBA) – Founded in 1978, IBA stands as the oldest business valuation program, encompassing standard valuation classes, business appraisal reports, membership, and examinations for professionals at different levels. 

The gap in qualifications between a CPA and a business appraiser is significant; that much is clear.

Now, what are the differences between the services that they provide and their scope?

What Does a CPA Do?

The job of a CPA is to help you ensure your business is profitable and successful. Although all CPAs might not offer the same services, here are 9 services that you can expect from a CPA:

  1. They help you establish effective business operations and plans for profitability. They also assist you in setting short- and long-term strategies tailored to your business.
  2. CPAs offer valuable advice on financial and tax planning and accounting services. Their expertise helps you in setting and meeting your business growth goals.
  3. CPAs help develop powerful business plans and guide you on financing options. They provide insights on handling debt, the pros and cons of loans, and seeking financing from investors.
  4. CPAs help choose the optimal organizational structure for your business. They offer advice on insurance, commercial property, disaster recovery planning, and succession plan development.
  5. CPAs educate you on year-round tax planning, preparation, and filing. They assist in decisions related to the business calendar or fiscal year planning and support during audits.
  6. CPAs streamline the day-to-day operations of your business by improving areas like pricing, inventory accounting, and internal audits.
  7. CPAs help with compensation decisions, employee hiring, and benefit-related queries. They provide insights into benefit plans like “flex plans” and guide decisions on 401(k) and stock options.
  8. CPAs, especially those with Certified Information Technology Professional (CITP) credentials, understand various accounting systems and leverage technology for regulatory compliance and internal controls.
  9. CPAs with Personal Financial Specialist (PFSTM) credentials provide advice on personal financial planning and assist you in budgeting, retirement planning, insurance decisions, and estate planning.

What Does a Business Appraiser Do?

A business appraiser helps you determine today’s resale value of your business. 

Knowing this helps a lot when you’re making big decisions. And If you track it over time, you can time things just right. 

For instance, if you’re getting a loan or getting a new partner, doing it when your business is valued high can get you the best deal. It’s also handy for planning your future in the company, like getting ready for retirement.

There is a lot that a business appraiser handles for your business, but these are the 7 most important services that you will need a business appraiser for:

1. Buying a Business

When you’re buying a business, a simple business appraisal ensures you don’t overpay. It helps you know the real value and make a smart deal.

2. Selling a Business

If you want to sell your business, a business appraisal helps you set an appropriate selling price, otherwise known as fair market value (FMV), preventing costly underpricing or overpricing. 

An accurate FMV helps you attract investors or secure loans and provides evidence of financial stability and potential growth.

3. Merger or Acquisition (M&A)

If you are considering a merger or acquisition, you, once again, need to know your business’s worth as it facilitates fair negotiations. 

4. Partnership Buy-out/Buy-in

For partnerships, having a neutral party value the business is common. This provides a fair “agreed price” for both sides. Business appraisers are unbiased, ensuring that personal interests don’t sway the valuation, which facilitates successful negotiations during a partnership buy-out or buy-in.

5. Resolving Legal Disputes

In legal conflicts like contract violations, shareholder disputes, or divorces, a business appraisal becomes essential. 

Courts often require an objective valuation to fairly determine the business’s worth. Appraisers get you a clear valuation, which in turn helps resolve legal disputes more effectively.

6. Strategic Planning

Business appraisal helps you gain critical insights into your business’s strengths and weaknesses. Once you know your strengths and weaknesses, you can make effective management decisions for strategic planning and long-term success.

7. Legal Compliance

Business appraisals are often necessary for legal compliance, such as tax reporting (especially for estate and gift taxes) and meeting regulatory requirements. Business appraisers help you stay compliant with state and federal laws and help you avoid hefty penalties or worse.

You might also like to read: What Is A Qualified Appraisal For Estate Tax Purposes

Benefits of Using Your CPA For Business Valuation

If your CPA has the right set of skills, experience, and qualifications, choosing your CPA to handle business valuation can offer a unique set of advantages. 

1. They Know Your Business

Your CPA has been handling your business for a while now and knows how everything works. This gives them a unique perspective, which can help them to give you a more realistic and accurate FMV.

2. They Can Save You Some Time and Money

Your CPA already has all your financial records and most of the information you need for evaluating a business. 

So this saves you the time that you would spend to collect all the relevant data.

They also know about your tax implications and legal requirements, which ultimately saves you time and money.

Drawbacks of Using Your CPA For Business Valuation

With all the advantages, there are also some disadvantages that you may face.

1. They Might Not Be Qualified For The Job

As we discussed earlier, you can see business appraiser and CPAs have different qualifications, and their responsibilities differ by a great margin.

Business valuation is a complex process, and simply put, CPAs are not trained to conduct one.

So, naturally, they don’t have the set of skills needed for such a complex process.

Due to the dynamic nature of the industry, the FMV that they provide may reflect the value of the company at a particular point but not its potential.

2. Conflict of Interest

Most likely, you have a long-standing relationship with your CPA, and this can bias their judgment.

They have a personal stake in the valuation, which is a conflict of interest and raises a question of their credibility.

You might also like to read: 409A Valuation: A Complete Guide For Startups

 

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Conclusion

As you can see, the qualifications and the scope of services of a CPA and a business appraiser differ a lot.

So, the answer to your question, “Can a CPA do a business valuation?” would be no, they cannot, and the reason is simple: they simply do not have the expertise required for the job.

That is true for most cases. However, if a CPA has the right required qualifications and prior experience in business appraisal, they just might be able to help you out. 

But in such cases, you have to do your own due diligence to make sure that they are right for the job.

In any case, you should always hire an expert business appraiser to evaluate your business, someone who has proven prior experience in your industry and has shown great results, like our team of experts at Arrowfish Consulting.

Our team of business appraisal experts boasts a collective experience of 200+ years across diverse industries. 

Our team has helped many people and businesses, such as business owners like you, insurance companies, lawyers, banks, and individuals. 

We’re offering a free first meeting to make things simpler for you. Feel free to contact us and set up a time for your appointment.

Explore our business valuation services in UtahDallasSan Antonio, TexasDenverLas VegasChicagoSan DiegoWashington, and Houston.

jeremiah grant

Jeremiah Grant

Jeremiah Grant is the Managing Partner of Arrowfish Consulting. In addition to acting as a primary liaison for many of the firm’s engagements, He primarily focuses on business valuation and economic damages expert witness assignments, in addition to forensic accounting and insurance claims analysis.