Types of Business Appraisals in a Divorce in AZ | Hildebrand Law, PC

Mon 6th Nov, 2017 Arizona Divorce Laws

A Calculation, Summary or Detailed Appraisal Report – What is the Difference?

As a practicing appraiser, a question that I am regularly asked is “what is the difference in scope between a Calculated Value, a Summary Report, and a Detailed Report when determining what a business is worth?

Which one is appropriate for my situation?”

The three types of reports mentioned above are all considered acceptable according to the National Association of Certified Valuators and Analysts (NACVA) for conducting a business valuation in a divorce as long as the certified evaluator follows the established reporting standards for each.

The difference between these reports is the level of discovery and data that is included, as well as the methods and approaches used to reach the Conclusion of Value or the Calculated Value.

A Conclusion of Value can be presented in either a Detailed or Summary Report. Both the Detailed and Summary reports have the same reporting standards, however, the difference is in the depth of company background and history that is included in the report.

The Summary Report is basically an abridged version of a Detailed Report. A Calculated Value is presented in a Calculation Report. A

Calculation Report has different reporting standards and, per NACVA, must include the following statement ( http://web.nacva.com/TL-Website/PDF/NACVA_Professional_Standards_Incl_Review_Stnds_Effective_6-1-17_Final.pdf, pg. 10.):

“This Calculation Engagement did not include all the procedures required for a Conclusion of Value. Had a Conclusion of Value been determined, the results may have been different.”

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This statement is an important caveat, as the content of a Calculation Report is far more limited and typically not the best option if your Report is to be used for a legal issue, as the methods utilized to arrive at the Calculated Value are not as in-depth, nor defined, as they are for a Detailed or Summary Report and may be more difficult to defend.

The most common report form is the Summary Report.

The reason for this is it covers all of the investigation and analysis required in a Detailed Report, yet time and energy are saved by writing a summary of the findings instead of extensive detail for each part of the valuation process, therefore making it a more cost-effective option for the client.

A Conclusion of Value is more defendable in a court of law, as it includes a more thorough and detailed analysis than a Calculated Value.

When an appraiser performs a Detailed or Summary Report, among other things, the appraiser must consider three approaches to value and the appropriate methods to employ under each approach to reach a Conclusion of Value. Below I have included some, but not all, generally accepted methods that are commonly used in business valuation:

Asset Approach
Book Value Method
Adjusted Book Value Method – Going Concern
Adjusted Book Value Method – Liquidation
Income Approach
Capitalization of Earnings Method
Discounted Cash Flow Method
Capitalization of Excess Earnings Method Market
Market Approach
Market Data Method – Bizcomps
Market Data Method – IBA
Market Data Method – Pratts Stats

The appraiser uses their experience to choose the best method under each approach and uses accepted best practices to correctly execute each method. This is dependent on the purpose of the appraisal and the particular industry involved.

Regardless of whether you engage someone to provide you with a Calculation, Summary or Detailed Report they should be certified through a nationally recognized association. If you have any additional questions about what type of valuation is best for your situation feel free to call Matthew B. Cassedy, MBA, CBA, CVA, CMEA of Analytic Business Appraisers, LLC at (480)857-7449.

FAQ Questions & Answers: Types of Business Appraisals in an Arizona Divorce

What are the different types of business appraisals used in an Arizona divorce?

Answer: The three primary types of business appraisal reports used in an Arizona divorce are a Calculation Report, Summary Report, and Detailed Report. Each report provides a method for determining the value of a business, but they differ in the amount of analysis, financial investigation, and documentation included. A Summary or Detailed Report generally provides a more comprehensive valuation than a Calculation Report because it includes deeper analysis of the business’s financial information, industry factors, and valuation methods.

What is a Calculation Report in a business valuation for an Arizona divorce?

Answer: A Calculation Report is a limited-scope business valuation report where the appraiser and client agree on specific valuation procedures. Instead of providing a full conclusion of value based on an unrestricted analysis, the appraiser performs selected calculations using agreed-upon assumptions and methods. This type of report may be appropriate in some divorce situations where the parties need a quicker or less expensive valuation option.

What is the difference between a Summary Report and a Detailed Report in a divorce business appraisal?

Answer: The main difference between a Summary Report and a Detailed Report is the level of explanation and documentation provided. A Detailed Report includes a more extensive analysis of the business, valuation approaches, financial information, and supporting conclusions. A Summary Report contains the essential findings and conclusions while presenting the analysis in a more condensed format. Both may be used in divorce-related business valuations when prepared according to applicable professional standards.

Which type of business appraisal is best for an Arizona divorce?

Answer: The best type of business appraisal for an Arizona divorce depends on the complexity of the business, the amount of financial information available, whether the valuation may be challenged in court, and the goals of the parties. A Summary or Detailed Report is often preferred when the value of the business is disputed because these reports provide more supporting analysis than a limited Calculation Report.

What valuation methods are used in an Arizona divorce business appraisal?

Answer:
Common valuation methods used in an Arizona divorce business appraisal include:

Asset Approach: Determines value based on business assets and liabilities.
Income Approach: Estimates value based on the company’s earning ability and cash flow.
Market Approach: Compares the business to similar businesses that have been sold or valued.

Specific methods may include capitalization of earnings, discounted cash flow analysis, adjusted book value, and comparable business sales analysis.

Why does a business need to be appraised during an Arizona divorce?

Answer: A business may need to be appraised during an Arizona divorce because its value can be an important marital asset that must be considered when dividing property. A professional business appraisal helps determine the company’s value and provides financial information needed for settlement negotiations or for use at a final divorce trial.

Can a small business be valued during an Arizona divorce?

Answer: Yes. Small businesses, professional practices, family-owned companies, and closely held businesses can all be valued during an Arizona divorce. The appraiser may review financial statements, income records, business assets, liabilities, owner compensation, and other factors to determine the company’s value.

Does the type of business appraisal affect the value of a business in an Arizona divorce?

Answer: Yes. The type of appraisal report and valuation methods used can influence how a business’s value is calculated. A more detailed analysis may identify factors that affect value, such as goodwill, business assets, earnings, market conditions, and applicable valuation discounts.

What is a Conclusion of Value in a divorce business appraisal?

Answer: A Conclusion of Value is an appraiser’s opinion of a business’s value after performing a valuation analysis. This conclusion may be presented in either a Summary Report or Detailed Report and is generally supported by an analysis of relevant financial data and accepted valuation approaches.

What information does a business appraiser review during an Arizona divorce?

Answer: A business appraiser may review financial statements, tax returns, revenue records, expenses, business assets, liabilities, owner compensation, industry information, and even an interview of the business owner. The goal is to determine an accurate value of the business based on reliable financial and operational information.

How long does a business appraisal take in an Arizona divorce?

Answer: The time required for a business appraisal depends on the complexity of the company, the availability of financial records, the type of appraisal report requested, and whether additional investigation is needed. A smaller business with organized records may be valued more quickly than a complex company with multiple owners, assets, or disputed financial information.

Who performs a business appraisal in an Arizona divorce?

Answer: A business appraisal is typically performed by a qualified business valuation professional, such as a certified valuation analyst or another credentialed appraiser with experience valuing businesses for legal purposes. Choosing an experienced professional is important because divorce valuations may require analysis that can withstand negotiation or scrutiny at a divorce trial.

What happens if spouses disagree about a business valuation in an Arizona divorce?

Answer: If spouses disagree about the value of a business, they may negotiate using competing valuations, request additional analysis, or present valuation evidence in court. The quality of the appraisal report, the methods used, and the supporting financial analysis can become important factors in resolving valuation disputes.

Are business appraisals required to divide a business in an Arizona divorce?

Answer: A business appraisal is not always required, but it is often necessary when spouses need to determine the value of a business interest for property division purposes. Without a reliable valuation, it can be difficult to determine an equitable division of marital assets.

Arizona Divorce Attorneys Handling Business Appraisals in an Arizona Divorce

If you have questions about types of business appraisals in an Arizona divorce case, you should seriously consider contacting the attorneys at Hildebrand Law, PC. Our Arizona community property and family law attorneys have decades of combined experience successfully representing clients in community property and family law cases.

Our family law firm has earned numerous awards such as US News and World Reports Best Arizona Family Law Firm, US News and World Report Best Divorce Attorneys, “Best of the Valley” by Arizona Foothills readers, and “Best Arizona Divorce Law Firms” by North Scottsdale Magazine.

Call us today at (480)305-8300 or reach out to us through our appointment scheduling form to schedule your personalized consultation and turn your Arizona community property or family law case around today.

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