Measuring the Economic Loss
The solution? Working with a business valuation expert.
It’s the job of a business valuation expert to establish the value of a business and its underlying assets. Doing so requires a thorough examination of the business, including a careful analysis of pertinent operational, financial, industry, and economic data.
In cases of business interruption, a valuation expert will estimate lost profits caused by fire, flood, or other unforeseen events, as well as project the economic loss caused by an injury or wrongful death. In short, it’s their responsibility to measure the value by which all parties are made “whole” after the accident or event. However, not all valuation professionals are created equal. Every economic loss profile is unique and therefore requires an experienced and knowledgeable professional to give an independent, well-reasoned and well-supported opinion.
In addition, business valuation is a complex and evolving field. It includes elements of finance, accounting, law, economics, management and other disciplines. As a result, you should use strict criteria in evaluating or selecting a business valuation professional, including reviewing credentials, training, and experience. Also, if the valuation becomes part of a lawsuit, or is questioned by the IRS in a tax matter, the credentials of the valuation professional you chose could be raised as an issue – and could become a potential liability.
Because of these financial and legal implications, it’s important to exercise a great deal of care when selecting a valuation expert. You can start by looking for the following credentials:
Accredited Business Valuator and CPA Designations – The American Institute of Certified Public Accountants grants the Accredited in Business Valuation (ABV) designation only to CPAs who have passed an exam and demonstrated experience in the field (defined as involvement in six business valuation engagements or 150 hours that demonstrate substantial experience and competence).
Financial Forensics and Turnaround Experience – You should seek a valuation expert that not only has a significant level of experience conducting business appraisals, but also one with financial forensics (our firm has licensed Certified Financial Forensics) and turnaround (Certified Turnaround Professionals) / distressed business experience. Forensic accounting experience enables a professional to obtain the information and determine its validity, while turnaround experience helps the injured party get back on track.
Knowledge About the Economy – The business valuation professional you choose should be able to see the big picture beyond debits and credits. They should have experience and knowledge in taking the marketplace – e.g. your industry and geographical parameters – into consideration when conducting a business valuation.
Strong Communication Skills – The courts, Internal Revenue Service, and other authorities demand an experienced, credentialed valuation expert who can effectively communicate their findings. Often this means seeking the expertise of a person who devotes all or substantially all of their professional efforts toward providing business valuation services.
At Lakelet Financial Forensics Group (LFFG), our experts are highly experienced and credentialed. We offer both business valuation and forensic accounting services, enabling us to ensure we have the best information available and can deliver the most accurate measure of economic loss based on that information. Our team has the ability to examine large amounts of complicated data in an efficient and cost-effective manner, and report solid conclusions supported by careful analyses.
The bottom line?
Business interruption cases are complex – and can have far-reaching implications for business owners, employees, suppliers, and consumers. It certainly does not pay to be caught off guard when they occur. Working with a credentialed and experienced business valuation expert is not just a good idea; it is vital for the recovery of your business.