Which Business Valuation Report Matters?

The various types of business valuation reports produced by a business appraiser can be confusing to an entrepreneur, especially when the appraiser belongs to more than one valuation association. Under most appraisal standards, a business appraiser can produce two types of reports: a detailed appraisal report or a calculation report.

The difference between the two versions of the business valuation report is the content and level of information provided. The appropriate report option and the level of information necessary in the reports are dependent on the intended use and the intended users.

A detailed appraisal report includes detailed explanations for all aspects of the business valuation analysis. This report is the most inclusive appraisal available and strictly complies with business valuation standards. Detailed business valuation reports are recommended for estate tax audits or gifting of a business interest where a third party, such as the IRS, may be reviewing the document. For the entrepreneur, additional purposes of a detailed appraisal include litigation support, buy/sell agreement valuations, and stockholder disputes.

A calculation report is an abbreviated version of a detailed appraisal report and typically excludes detailed analysis of the business and the industry. This report is based upon limited procedures that are agreed upon by the appraiser and the client.

The distribution of a calculation report is limited only to the client. A calculation report is often used for internal planning purposes such as the sale or acquisition of a business interest, business planning, succession and estate planning.

Due to the fact that every business valuation report is customized for a specific purpose and audience, problems can occur when a client tries to use a report for which it was not intended. Having a thorough understanding of the type of valuation report required can not only save time but money as well. When considering any valuation need, please be sure to clearly define with your valuation expert prior to the start of the engagement the intended purpose to ensure the proper report will be prepared.