October is famous in my home for two things, Halloween and scary surprises. Halloween is something my kids and I look forward to each year! They get to go trick-or-treating and come home with lots of candy and I get to collect my ‘dad tax’ on their haul. What better way to teach kids about income taxes? The first year I charged the ‘dad tax’, my kids thought it was a scary surprise, but now they are all volunteering to pay me off as fast as they can, so they get to enjoy the rest of their candy. (I charge Reese’s peanut butter cup or a Snickers bar, per kid.)
I have found a few scary surprises in my career that involve business valuation, so I thought I would share a few with you, this month.
Surprise Number 1.
I was hired years ago to appraise a non-controlling ownership interest in a business for a divorce. In the initial phone call, I was told the particulars of the case, the nature of the business I was to appraise, and was given plenty of time to accomplish my analysis. It sounded very straight forward and just like any number of projects I had already worked on to date. So, I quoted my fee and sent the client my engagement agreement. The client took much longer than expected to send me the financial data. This is something that happens fairly regularly, so I was not too surprised at this point. The surprise happened when I received their records and in the course of my analysis, I found that the entity I was appraising also owned another non-controlling interest in another business. This was an investment in a third-party enterprise that had totally different ownership, and operations. In order to determine the fair market value of the subject ownership interest in the one business entity I had been hired to appraise, I now had to also determine the fair market value of this non-operating investment in the other enterprise. I had not considered that possibility when I first quoted my fee. Surprise!!
Surprise Number 2.
This happened fairly recently. I end up with a fair amount of referral valuation work from other appraisers and this was one of those. I had no prior relationship with this client, but I wanted to make my referral source look good. This ended up being a project type that I had never done before, which I disclosed to the client. They still wanted me to do the assignment, so I took it on. I ended up spending a lot more time on this particular report than I thought I would, even factoring in my learning curve. Surprise!!
Surprise Number 3.
Here is another surprise from many years ago that led to a learning experience for me. I received a call from a potential client. We went through the assignment particulars such as, what was being appraised, the purpose of the appraisal, the effective date, what documents I would need to see, and so forth. There was nothing special about this call at the time. I end up doing the job on about half of the calls I get, asking for a quote, and I some extra down time at this point so I quoted them a lower fee than I would have otherwise. I think I was just finishing up a report and could get right on this one as soon as they delivered the documents I needed to see. They thanked me for my time, promised to send me the engagement agreement, retainer, and my documents, then hung up. Many weeks later, I still hadn’t received anything, and I ended up taking on a different valuation project with a very quick requested turnaround time. I was working on that project, when lo and behold, a large package arrived with a copy of my engagement agreement and everything I had asked for in my document request list from the forgotten phone call, including the very small retainer I had asked for. Surprise!! I ended up working twice as hard to meet both deadlines. The second one I charged an appropriate amount for, the surprise project ended up getting a great deal since I quoted that fee back when I had lots of time. Now, my engagement agreements all come with expiration dates so I can update my fee if a client ever takes that long to engage my services again.
I have picked up a few things in my 20+ years as a business appraiser and am happy to share what I have learned to those who ask. Don’t worry about any fee. I will get an extra candy bar from the kids’ trick-or-treat bags this year. *grin* Surprise!!