A business’s true value is a central theme in all fundraising rounds and IRS audits. In fundraising rounds, not only does valuation determine the amount of equity given up for the required investment, but it also affects how the early investors are compensated. In mergers and acquisitions, a consensus about the business valuation can be the main obstacle.
If you issue stock-based compensation or your shareholder executes their estate plan, your business value will come under the scanner to judge if the true income was reported or not.
So, naturally, you would not want anything less than a top business valuation company to perform your business valuation. We define a top business valuation company as one that has a team of valuation and taxation experts. It must also have considerable experience in meeting client needs consistently. Since you will be sharing material information with this company, you would want a business valuation company with a reputation to maintain confidentiality.
We have compiled a list of top business valuation companies that meet all these requirements and more.
Private equity trends and demand for business valuations
According to Bain & Company, in 2023, there have been significant drops in private equity investments and exits, while the value of aging unexited companies hit a record high of $3.2 trillion. In 2023, the share of capital that is at least 4 years old rose from 22% to 26%.
So, there is significant pressure on private equity funds to do deals and make exits. In such a scenario, the demand for business valuation services is expected to boom.Hence, we believe business valuation services companies could be on the cusp of significant growth.
Benefits of Using Top Business Valuation Companies
As mentioned earlier, valuations are quite important when it comes to taxation and equity transactions. So, you must not overlook the benefits of engaging business valuation companies of the highest quality, which can be:
- Accuracy and objectivity – A top business valuation company will not only be proficient in various valuation methodologies but will also know when to use which methodology. This will ensure an accurate and defendable valuation that aligns with your needs. They must also analyze your company objectively without any biases and prejudices.
- Expertise and credibility – Like all great service companies, a top valuation company will invest in a team of experienced professionals. They will have professionals with knowledge about various industries and experience in valuing companies of all sizes. You will be able to verify their claims of expertise through credentials recognized all over the industry.
- Enhanced negotiation power – In private equity transactions, valuations take a central role. So, you must approach deal negotiations with a solid valuation in mind. You must also be able to justify your position. A top business valuation company will understand your needs, provide a valuation figure that represents your concerns best, and give you a well-documented report so you can justify the valuation on the negotiation table.
- Risk mitigation – A top business valuation company goes beyond just providing a number for equity transactions and acts as a partner in your growth. They will provide well-documented valuation reports. By reading such valuation reports, you can easily identify the threats your company faces. This will enable you to effectively mitigate risks.
Choosing the Right Business Valuation Company
You can choose the right business valuation company if you keep the following points in mind.
- Identify valuation needs – Business valuations are required for financing, insurance, issuing stock-based compensations, and equity transactions. You must identify why you need a business valuation. Valuation reports can be comprehensive, estimates, or calculations. You can choose between the valuation report types based on the information you need and your disclosure requirements.
- Research and compare firms – Now, the next step would be to shortlist business valuation companies that match your needs. So, you should check their service offerings, and see if they serve where you are located. Then, you can rank the firms based on how much experience they have.
- Evaluate credentials and methodology – In the valuation services space, credentials issued by the National Association of Certified Valuators and Analysts (NACVA), the American Institute of Certified Public Accountants (AICPA), the American Society of Appraisers (ASA), the Institute of Business Appraisers (IBA), and the CFA Institute are considered the gold standard. You should check if the team members listed on a business valuation company’s website have credentials issued by these institutes.
- Client reviews and references – To understand a company’s reputation, you should look for client reviews and testimonials, preferably not on their website but on independent forums.
- Fees and transparency – Valuation services need not cost an arm and a leg. At the same time, you should realize that preparing a sound valuation report will take expertise and a certain time investment. So, you should rank your list of business valuation companies by their prices and check if there are any hidden costs.
Top Business Valuation Companies
Some of the top business valuation companies and their areas of expertise are as follows:
Eqvista
Eqvista’s valuation services are geared towards startups of all stages. We have experience in serving over 23,000 companies right from the seed stage to Series C and beyond. Our team comprises accredited tax experts and NACVA-certified valuation analysts. We specialize in fundraising valuations as well as valuations for tax purposes. We help American and British companies in issuing stock-based compensations in a tax-compliant manner through our 409A valuations and HMRC valuations. We also offer portfolio valuation services and software valuation services.
Big 4
The Big 4 professional services companies, viz. Deloitte, EY, KPMG, and PwC, have a wide portfolio of services that includes business valuations. Needlessly to say, they have scores of clients and experienced teams. Their presence is seen in almost all economies. However, we must note that their main focus would be on their auditing services. So, you may expect them to specialize in valuations for audit purposes.
Kroll (Duff & Phelps)
Duff & Phelps started as an investment research firm in 1932, started providing valuation services in 2005, acquired Kroll in 2018, and unified under the Kroll brand in 2022. They have more than 1,600 valuation professionals in more than 60 offices globally. Every year, they perform more than 10,000 valuations. The US Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), and the International Accounting Standards Board (IASB) are known to take inputs on valuation regulation-related matters from Kroll.
Grant Thornton
Grant Thornton was founded in 1924 and provides advisory services related to corporate tax, audit and assurance, risk advisory, and transaction advisory. They serve law firms, accounting firms, consulting firms, and engineering firms. They provide valuation solutions for equity transactions, bid support, tax, fund administration, dispute resolution, asset-backed lending decisions, and financial reporting.
Teknos
Teknos Associates defines itself as a valuation and advisory services provider. Their headquarters are in San Francisco (California) and they also have offices in Phoenix (Arizona), San Diego (California), and Portland (Oregon). They provide valuation services for issuing stock options, transactions, portfolio valuations, and gift and estate planning. They have a team of qualified appraisers who have decades of experience in providing valuation services.
Mistakes to avoid when choosing the right business valuation company
As long as you do not make the following mistakes, you can choose the right business valuation company.
- Ignoring Reputation and Experience: You should not forget to check whether a company is experienced in the type of valuation you need and its reputation.
- Choosing Based Solely on Cost: Business valuations impact tax liabilities and your negotiating power in equity transactions. Even the smallest mistake can lead to huge losses. So, cost should only be treated as a tie-breaker and not the main criterion for choosing the business valuation company.
- Not Verifying Credentials: To attract clients, business valuation companies may publish tall tales about their credentials. However, you must verify these credentials before making the choice.
- Overlooking Client Feedback: You should check the client feedback on various forums and not just the company’s website. You can check the kind of interactions they are having on social media and how people talk about them on platforms like LinkedIn.
- Neglecting Technological Capabilities: Sound technological prowess is key in delivering valuation reports promptly. It also boosts a valuation company’s accuracy and the quality and audit-readiness of the report. You must also ask what measures such a company takes to ensure data privacy.
Eqvista- The perfect valuation partner for startups!
Since business valuations are important for fundraising negotiations and taxation, you must give serious thought as to which business valuation company you choose. The benefits of engaging a top business valuation company include accurate and timely valuations, risk mitigation support, and credible valuation reports that can be relied upon in case of audits.
On the other hand, a mistake from the business valuation company can lead to expensive tax liabilities and disappointing equity transaction negotiations. Hence, you must choose the right business valuation company very carefully.
If you are a startup, consider choosing Eqvista. We specialize in startup valuations and offer affordable annual subscription plans with unlimited valuations. Contact us to learn more!
