Clients frequently want to know, “How long is an equity compensation valuation good for?” We get it. You want to provide employees, contractors, and other service providers who are compensated through company stock with current information about their interests, but the time and cost required to get a valuation must also be considered.

Due to the natural business changes every company goes through, accounting and legal professionals often recommend updates at least annually if no significant change or financing has occurred.  However, unique company or market characteristics often necessitate more frequent updates. Here are some of the factors to consider when determining the need for a valuation update:

  • Significant changes in the company’s financial situation
  • Shift in overall strategy
  • Achievement of business milestones
  • Changes in market or industry conditions
  • Gain or loss of major customer accounts
  • Additional funding
  • Issuance of new equity compensation
  • Potential for an upcoming IPO
  • Changes in expectation as to the timing of an exit event

Even for companies that have fairly steady operations, the effects of small business changes accumulate over time. Companies that deal with major changes relatively infrequently may be suited to regular summary updates to supplement full comprehensive reports as a way to maximize the cost-benefit analysis of equity compensation valuation.

Originally published in the Financial Reporting Update: Equity Compensation, June 2019.