Valuations work

transferpricingCFA Wrote: ------------------------------------------------------- > Thanks for the advice mobius. > > I think hed just like to use it for a presentation > to try and add weight to his getting a possible > loan. > > Can I not just structure it to say that its just > our opinion and should not be relied upon by other > parties such as banks, potential investors etc. > > My plan is to do a comparables valuation for him > as well. To see what similar type businesses, > with similar earnings, functions etc are selling > for. The risks associated with this type of work are actually quite substantial. As futile as a comp valuation to a small business may appear, the thought that a party providing capital may be relying on your work creates substantial legal risk. A simple disclaimer to your client alone does not suffice, in my opinon. Your client should not to be able to share your work with a third party without your direct written consent. Additionally, you should require that any third party that is provided with your work agree to view it on your terms. Lastly, how would your employer feel if they knew you were performing this service. I imagine that your client will sell this to a bank somehow; will they mention the valuation is performed by John Doe who has 10 years experience with Company XYZ ?

Thanks for the comments RIG. After reading what you write, I think Ill have to make that clear to the potential client. He wants to use this as I said for a potential business loan. So I was also thinking of trying to get more work from him in helping him make a presentation for the loan. Im not sure how my employer would feel. But its a different service in a very very different marketspace. Additionally I have never mentioned what company it is I work for. Rather I just say I have worked for Big 4 firms.

I agree with RIG that there’s substantial risk to that kind of a valuation. Maybe you could do some “limited procedures” without actually having to provide a letter or a report that says that in TransferpricingCFA’s opinion, the value is X. In other words, you could run some comps, maybe do a DCF, make it look nice and presentable for the presentation to the bank… but there would be nothing in the presentation to the bank that mentions your name. It would be kind of like him outsourcing the work to you. Maybe your client won’t go for it. Maybe he thinks having a letter from an independent valuation expert will carry some weight in the presentation. My response to that would be to downplay the importance of having my name on the valuation. If I were a bank, I’d want to see that a big firm with deep pockets is standing behind the valuation, so I could sue them if something went wrong. Having TransferpricingCFA’s name behind the valuation would give a bank very limited comfort.

As long as you write your engagement letter correctly and include appropriate disclaimers in your final work product, the risk isn’t really all that much. Make sure the client indemnifies you for all expenses, damanges, legal fees, etc. that could arise from your work absent negligence on your part. If your work is shared with 3rd parties, make the client sign a release and also make the 3rd party sign a 3rd party access letter which basically says that while you are letting them see the work, they cannot rely on it for any reason and have no rights. Also, never, ever, refer to a value conclusion as your opinion. It may seem silly, but that sets a higher bar. Only say something along the lines of "Based on my analysis, I have estimated the fair market value at $xxx - $yyy.

Hello Everyone,

Great post to discuss and everyone providing very usefull information. Thnk you everyone for providing this information.

Thanks again…