The Art and Science of Business Valuation

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Would you know how to value Linked In? Four billion? Ten billion? The real value of LinkedIn has been talk of the business media since its IPO on May 19. Is the company overvalued? Does Wall Street “get it” about valuing social media companies? The controversy over LinkedIn value puts the spotlight on the art and science of business valuation.

 Historically, business valuation has been a highly profitable business, attracting more CPA firms to offer the service. Seventy-four percent of top firms surveyed by Accounting Today reported increased business in business valuation. Billing rates for business valuation services range from $125 per hour to $900 per hour in large practices, as reported by BVWire News in May.
 
How can a CPA firm decide whether to enter the business valuation market?
 
To answer the question, Michael A. Crain applies the management theory developed by Harvard professor Michael Porter to the business valuation practice area. According to the theory, there are five competitive forces to consider when analyzing the business environment. The first is the “threat of entry of new competitors.” Crain emphasizes that business valuation is a knowledge-based service that once had a high barrier to entry. However, as training has become more accessible and less expensive, that barrier has come down and the number of competitors has grown. 
 
You can read more about the five competitive forces in Crain’s November 2010 article “A Competitive Analysis of Business Valuation Services” in the Journal of Accountancy.
 
Michael A. Crain holds several certifications in valuation: Accredited in Business Valuation (ABV) by the American Institute of CPAs, Accredited Senior Appraiser (ASA) in business valuation by the American Society of Appraisers and the designation of Chartered Financial Analyst (CFA) from the CFA Institute.

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