Until 1920, the market price of a business was restricted to negotiations between the buyers and seller, wherein the purchaser depended on his instinct to buy any company. The decisions were based on the forecasted profits and cash flow that usually depended on the seller's standard of living and status in the community. With businesses attaining new heights, the processes of forecasting soon became obsolete. After 1920, the Internal Revenue Service issued a Committee on Appeal and Review Memorandum that suggested using formulas to determine the tangible and goodwill value of the business for selling and gift-tax purposes. In 1959, the IRS issued Revenue Ruling 59-60, which became the backbone of finding the true worth of a business in the marketplace. The ruling was further changed and iterated as per the growing complexities of business. By the 1970s and 1980s, the demand for business valuation services was at a peak, and many accounting firms were either setting up valuation departments or acquiring their peers. The demand for valuation paved the way for professional appraisal organizations to come into existence. Companies such as Business Appraisers Inc, and the American Society of Appraisers formed their bases in the US for working on business valuation processes. During 1990s, the National Association of Certified Valuation Analysts was formed, and in 1997, AICPA held its first accreditation examination. The examination granted approximately 500 CPAs with an Accredited in Business Valuation (ABV) designation. Companies such as Napier, Ernst & Young, Morgan Stanley, Mercer Capital, and Kroll are some of the big industry players and provide business valuation services across the globe. The professionalism and the mode in which they conduct their services have given them a standing across the world. Although the cost of hiring these agencies is high, with their experience and guidance, a seller or buyer knows that they are in safe hands. |
