Selecting a Business Appraiser
Excerpted from Mercer Capital's recent book, Revenue Ruling 59-60 at 50: Rediscover Fair Market Value
Business appraisal is both an art and a science, and Revenue Ruling 59-60 reinforces this point upon a full reading of the complete document. The concepts of the willing buyer and the willing seller, as well as the basic eight factors to consider requiring careful analysis in each case, are broadly recognized. However, Revenue Ruling 59-60 needs to be properly recognized as setting forth the theory for the appraisal of closely held corporations, and appropriately highlights the difficulty in applying that theory in practice.
In Section 3, Approach to Valuation, the Ruling states:
Often, an appraiser will find wide difference of opinion as to the fair market vale of a particular stock. In resolving such differences, he should maintain a reasonable attitude in recognition of the fact that valuation is not an exact science. A sound valuation will be based upon all the relevant facts, but the elements of common sense, informed judgment and reasonableness must enter into the process of weighing those facts and determining their aggregate significance.
The appraiser must exercise his judgment as to the degree of risk attaching to the business of the corporation that issued the stock, but that judgment must be related to all of then other factors affecting value.
In Section 6, Capitalization Rates, the Ruling goes on to say:
A determination of the proper capitalization rate presents one of the most difficult problems in valuation.... Thus, no standard tables of capitalization rates applicable to closely held corporations can be formulated
The thoughtful concepts of reasonableness, judgment, and consideration resonate throughout Revenue Ruling 59-60. Indeed, some form of the word "consider" appears approximately 31 times. The body of knowledge that allows for that thoughtful consideration can be found in the certifications and professional designations that relate to business valuation.
PROFESSIONAL CREDENTIALS
There are several credentials or professional designations that are applicable to business valuation and related subjects. Professional credentials include the following designations: