Frequently Asked Questions
For your convenience, H+L has compiled answers to some frequently asked questions about our services. If you are unable to find the answers that you were looking for, please do not hesitate to contact us.
What is a Chartered Business Valuator?
Chartered Business Valuators are experts who quantify the worth of all, or part, of a business or its securities with the ability to determine the value of tangible and intangible assets, including brand and intellectual property, and then explain their analysis in an easy to understand manner. Established in 1971, the Canadian Institute of Chartered Business Valuators (CICBV) is nationally and internationally recognized as the pre-eminent business valuation organization in Canada. A chartered business valuator receives their designation after completion of at least six courses, extensive full-time or equivalent experience, and passing national exams.
Why is a valuation required?
Valuations are prepared for potential purchasers/vendors looking to buy or sell shares in private companies, matrimonial situations, shareholder disputes, corporate reorganizations and income tax planning, estate planning and reporting purposes, expropriations, shareholder agreements, and in situations where the private and public company shareholdings are either minority interests, escrowed or held in a large block subject to an illiquidity discount.
How does the valuation process get started?
First, we discuss the purpose of the valuation and the type of valuation report required. Next, we prepare a retainer letter outlining the valuation work to be performed and the costs. Finally, we will issue a list of required information to be gathered by your business in order to get the valuation started.
What is the process for completing a valuation?
Once the initial request for information has been gathered, we typically arrange for interviews with key management and a tour of the facilities. These meetings sometimes generate more questions and some additional documents may be required. At the same time, we undertake the relevant economic and industry research, and determine the most appropriate valuation methodologies to employ. Time is then spent preparing the valuation schedules and gathering support for our conclusions. Finally, after the remaining questions are answered and documentation is complete, we prepare a draft of the complete valuation report with a full written narrative and numerical analysis.
What does a valuation cost? What are the fee arrangements?
The cost for a valuation is unique to the business and circumstances involved. Providing a recent set of financial statements enables us to give you a rough estimate of cost.
For most valuation assignments, we work on an hourly or per diem basis. To minimize costs, we work on the valuation in stages. If we find costs are much higher than expected after a stage of completion, we will inform you immediately to ensure you are comfortable with the work being undertaken or address the terms of engagement if they need to be modified. We only employ experienced valuators who truly understand the need to be cost efficient as well as thorough.
We generally do not perform fixed fee engagements. Much of our time and costs depend on the information provided by the business being valued. For example, we cannot control the quality and accuracy of the accounting information from the client, their knowledge of potential purchasers, their cooperation in working with our team, the specific circumstances or politics within a company where different people have their own viewpoints, and the availability of industry information.
What is your finished product?
Usually our finished product takes the form of a report, which includes narrative and accompanying schedules. Our reports are prepared under the professional standards set by the Canadian Institute of Chartered Business Valuators (CICBV). There are three types of Valuation Reports: Comprehensive, Estimate and Calculation. These reports are distinguished by the scope of review, the amount of disclosure in the report, and the level of assurance provided in the conclusion, with a Comprehensive Valuation Report providing the highest level of assurance (often used for courtroom testimony) and a Calculation Valuation Report providing the lowest level of assurance.
What specific items are contained in a report?
The narrative in all reports must include a description of the asset or shares being valued, the valuation date, the purpose of the report, the scope of the review (what information is relied upon), the major assumptions made by the valuator, the valuation methodology and approach taken to determine value, and a conclusion on value. Comprehensive and estimate reports have a greater level of detail including a description of the business and its operations, an assessment of the industry, competition, prospects going forward, and other key factors specific to the company being valued. In addition, the determination of cost of capital and valuation multiples are disclosed in more detail for a comprehensive report.
How long does a report take?
It depends greatly on the size and scope of the business, when the valuation date is set, and how soon the accounting information can be gathered by the client. In a simple situation where all information is available, a report can be completed in less than a month, sometimes days. However, larger and more detailed reports generally take much longer because of the volume of information being reviewed, the complexity of the business, and the necessity to gather most or all of the supporting documents before the detailed analysis can be started. Our firm can provide an estimate of timing after a review of the company's financial statements, the valuation date, and the availability of information.
What if I don't want a formal written report, but just the final numbers?
H+L recognizes that for many businesses, the cost of a valuation report can be significant. However, we also believe that you are retaining a valuator to provide independent, objective expertise and a thoughtful conclusion. There is no sense in providing the final numbers without an understanding of the business and an objective analysis of the financial information. That being said, we often make arrangements to work with our clients up to a certain fee level, and then prepare a preliminary analysis or report our findings to date, for internal discussion purposes only. At that time, the client or lawyer can assess the situation in order to determine whether it is prudent for us to continue our work. Our hands-on approach ensures fees are appropriately managed and not delegated to others.
I am thinking of buying/selling my shares in a business, but I need advice. What can I do?
We are able to work with potential buyers/sellers in an advisory role. We assess value, investigate as needed and report to the party engaging our services. Sometimes all that is required is a meeting to discuss value. In other circumstances, a client will ask us to become further involved as negotiations continue. We are valuation experts, but buying a business may also involve lawyers, tax advisors, negotiators and accountants. Our partnerships in the professional business community ensure you have the best expertise for your unique situation.
How is a report for quantifying financial damages (e.g. business interruption or damage claim) any different than a valuation report?
In some ways, they are similar. All reports issued by a Chartered Business Valuator have to meet the standards set by the CICBV. All reports require an understanding of the business, the numbers and the issues. On the other hand, a damages report is very unique to the circumstances of the situation and is often accompanied by larger volumes of relevant accounting data. There is no pre-determined methodology to follow.
I may need a valuation, or I may have suffered damages from an event. I don't know what firm to use, what service they provide, and what it may involve and cost. What can I do?
We will provide you with a free consultation to discuss your situation. If we are not able to help you directly, we will redirect you to another expert better suited to meet your needs. We want you to be served by the best expert for your particular situation. Contact us for more information.
Does H+L perform any accounting, audit or income tax services?
No, our strict adherence to business valuation and financial litigation means we stick to what we do well. We believe in relationships and reputation. Most of our clients already have an existing relationship with their accountants and income tax expert.
Does H+L value my real estate and equipment as well?
No, we work closely with experts in real estate and equipment appraisal. They can provide those services to you directly, without any mark-up on our end. We don't feel that having a one-stop business for all valuation and financial consulting matters is necessary. Neither do our clients, and many of them are large diverse companies with specialized financial needs in a number of areas.
Is there a standard rule-of-thumb multiple for valuing a business?
No, in certain industries, there may be some general rules of thumb, but usually that approach should only be considered a secondary approach to value, and not to be relied upon as a primary method to determine value. It is our experience that rules-of-thumb can be misapplied by people unfamiliar with the valuation process, are given far too much importance, and can often result in valuations that are significantly different than a more detailed analysis would support.
Does industry experience matter?
Certainly it is vital to have litigation experience and experience in the major industries that drive our local economy. H+L has extensive industry experience working with oil and gas (including drilling, services, mining and oil sands), manufacturing, retail, distribution, technology, real estate, pharmaceutical, professional services, and investment holding companies. There are hundreds of different types of businesses, and we can't be experts in all of them. The important thing is to employ a valuator who has breadth of experience in order to solve the particular situation at hand. Dealing with senior valuators is important and we offer that level of expertise to all of our clients, not just the largest ones.