The company should also consider designating an appraiser or appraisal firm in the valuation process buy-sell agreement. Careful consideration should be made during the selection process.  You will want to ensure that the firm/appraiser will be around when a triggering event occurs.  Additionally, you will want to determine if the firm/appraiser has the appropriate qualifications and can handle the project.  This determination can be made by specifying certain requirements in the buy-sell agreement including, but not limited to, education, training, industry experience, continuing education requirements and appraisal credentials.  Some of these may not be always necessary, but it is often useful to at least consider the appropriate appraiser credentials.  

Prior to making a selection, I recommend reviewing the credentials and requirements of the following appraisal organizations:

·         American Society of Appraisers – Accredited Senior Appraiser (“ASA”)

·         American Institute of Certified Public Accountants – Accredited in Business Valuation (“ABV”)

·         National Association of Certified Valuators and Analysts – Certified Valuation Analyst (“CVA”)

I think it is helpful for the owners to make the selection prior to entering into the valuation process buy-sell agreement. If everyone agrees from the beginning, then the owners are less likely to perceive bias in the process upon a triggering event. Additionally, the selection can require the process to be carried out by credentialed appraiser(s) who will be required to follow the ethical and reporting requirements as mentioned in my previous post. Again, agreeing on the appraiser (or at least the appraiser’s credentials) at the outset is particularly helpful if the buy-sell agreement requires more than one appraiser in the process.

So what are the relevant business valuation standards applicable to valuation process buy-sell agreements?  Often valuation standards are absent from a buy-sell agreement.  Business valuation or appraisal standards are rules of conduct and ethics that appraisers are required to follow depending on the valuation credential obtained.  There are quite a few selections available for business appraisal standards.  For example:

·         The Uniform Standards of Professional Appraisal Practice (“USPAP”).  Generally, USPAP represents the accepted and recognized standards of appraisal practice in the United States.  Additionally, this is often followed by real estate appraisers.  The main rules deal with appraiser conduct and reporting requirements. 

·         The ASA Business Valuation Standards.  These standards are published by the American Society of Appraisers and are updated on a somewhat regular basis.  The American Society of Appraisers also publishes the Principles of Appraisal Practice and Code of Ethics. 

·         The AICPA Statement on Standards for Valuation Services (“SSVS”) No. 1. These standards are for certified public accountant guidance. 

·         The National Association of Certified Valuators and Analysts (“NACVA”) Professional Standards.  NACVA publishes these standards for its members. 

·         The CFA institute Code of Ethics and Standards of Professional Conduct.  The CFA is not specifically considered a business valuation credential, but many appraisers hold this designation. 

The key takeaway here is that if the standards are not identified in the valuation process buy-sell agreement, then the appraiser is not technically required to follow any standards or ethics requirements. Additionally, if more than one appraiser is required for the process they may follow different (or no) standards and this can lead to dissimilar results and create problems for the owners. It makes sense to understand the business valuation standards and specify what the appraiser(s) will follow when conducting the analysis.