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FROM: JUL-AUG 2008 ISSUE | BY JEFF BUCKSTEIN
CGAs familiar with the chartered business valuator designation say the CBV training provides excellent opportunities for accountants to branch off into a new but related field. “Accounting is the language and – I would argue – the foundation of business,” says Mark Shoniker, MBA, CBV, CF, CGA, and senior director and group head of BMO Business Finance in Toronto. “Without a good understanding of accounting principles, practices, and methodologies, it becomes very difficult to understand some of the theoretical matters surrounding business valuation and insolvency,” he adds.
Professional accountants have invaluable expertise and knowledge, giving them a leg up in the valuation field. “Accountants – in particular those in public practice – have seen a lot of financial reporting, and it gives them a really good base to assess projections for the future,” says Lorna Goertz, CBV, CGA, a manager in the financial investigations group of Wolrige Mahon LLP in Vancouver.
“Value is what somebody will pay for something,” she explains, adding that purchases take into account “the present value of the future cash flows buyers expect to get from the asset. But in order to assess what future cash flows will be, you really have to understand the financial reporting that already exists.”
Typical duties of a business valuator are: analyzing the financial and operational aspects of a business, including a valuation of its assets and liabilities; assessing current and past factors such as cash flows and historic earnings to provide a best estimate of future rates of return or earnings; and comparing a business’ performance to its industry peers, among multiple other specialized tasks.
After helping to found BMO Capital Corporation in 1996, one of Shoniker’s first priorities was to search for the ideal study program to assist in his new role with the Bank of Montreal’s private equity group. He found it. “I looked at the curriculum for the CBV designation and thought, ‘this is just bang on’,” recalls Shoniker, who earned his CBV in 2000.
Shoniker hasn’t looked back. His CGA training combined with his CBV training has, he believes, provided an excellent technical grounding and helped him advance professionally over the past dozen years. His current position requires a significant amount of valuations knowledge and skill, as his group services clients who seek innovative financing solutions involving both debt and equity for buyouts, recapitalization, and other needs.
“I’m involved in financing companies that are being purchased by various private equity concerns. Understanding the true stand-alone value of the company helps ensure that the capital structure is sound,” says Shoniker. “It’s one thing to invest in a good company. It’s another to make sure that you’re investing at the right price, and price becomes a more difficult thing to narrow down in the absence of a liquid publicly traded entity,” he explains.
The number of CBVs nationwide has skyrocketed in recent years; there are currently more than 1,200 designated members, with close to 900 students waiting in the wings, notes Jeannine Brooks, MBA, FCGA, the Canadian Institute of Chartered Business Valuators’ Toronto-based president and CEO. The program began in 1971, and its initial growth was fuelled by factors such as the introduction of capital gains in Canada, and a soaring divorce rate.
Like the CGA program, CICBV studies are “very rigorous,” emphasizes Brooks; “last year, for instance, only about 65 per cent of students passed their examinations.” The study program consists of six courses that are delivered via correspondence or online and which generally take about three years to complete.
Four of the courses are mandatory; three involve business and securities valuation, and the fourth deals with legal and taxation issues. Students must take two elective courses spanning a range of topics, including: litigation support, advanced open market transactions, private company finance, and restructuring, among others. There is a four-hour membership entrance examination, and students need to gain practical experience in a manner similar to those in the CGA program. Fifteen hundred hours of related professional experience are required, of which 750 hours, or half, must be related to business valuation reporting.
Tom McCallum, FCGA, received his CBV designation in 1993. Based in Whitby, Ontario, McCallum had carved out a solid reputation as an expert in the field of taxation by then, but relished the opportunity to master new and often complex challenges. The catalyst for his decision to earn a CBV had its roots in the mid-1980s when McCallum observed a business valuator work on the estate of a client who died suddenly and left a successful enterprise operating in three provinces. This “subjective and judgmental discipline” had immediate appeal – an impression that has, if anything, grown stronger through time and experience.
He notes that the bulk of what he does is tax driven – requiring him to conduct valuations in a variety of fields, some of which take on a different dimension from most tax-related work. Cases involving divorce often prove especially challenging to deal with, given the strong personal feelings of the individuals involved.
The challenge from a professional standpoint “is to not become emotional about it,” says McCallum, who cites a hypothetical case where “Betty is divorcing Bob, who owns a business (she says is) worth $1 million and Bob insists is only worth $350,000.” The ability to “keep your independence and objectivity is a constant challenge,” he acknowledges. CBVs need to “recognize that although you’ve been engaged by Betty’s side, you’re really not there to represent her as much as you are to present factual evidence.”
Corporate disputes can be even more harrowing.
“I actually find shareholders in dispute to be even more nerve wracking than any matrimonial dispute,” he says. When business partners admit they have problems, they’re generally still together, unlike cases involving matrimonial conflict, which usually occur after there has been a physical separation and cooling off period.
“If it’s an ongoing business, you can see that this just eats away at them and actually starts destroying the business,” McCallum adds.
Over the past decade, a whole new series of issues have emerged to further enhance the CBV designation’s prominence, and spike its membership higher. One of those factors was the collapse of Enron Corporation in late 2001, which led to new regulations forcing many blue chip accounting firms to diversify their services. Large firms were, for instance, forbidden to continue providing both audit and financial statement related consulting services to the same publicly listed client. But the resulting spin-off trend has also led to the growth of smaller boutique firms, which have been established to handle CBV-related work that used to be the purview of larger colleagues.
Another factor favouring the growth of work for qualified CBVs says Goertz, are the relatively new Handbook sections requiring intangibles to be tested for impairment and certain purchased intangibles to be recognized apart from goodwill. When a business is purchased, intangibles such as trademarks, licences, databases, customer relationships, and non-competition agreements must be separately valued rather than being reflected as part of goodwill, she explains.
Experts also point out that fair value accounting, and the valuations expertise of CBVs, will become even more prominent with the adoption of international financial reporting standards in Canada by 2011.
And Canada’s aging population is pushing growth opportunities for CBVs. Scores of baby boomers will be retiring over the next couple of decades – a trend that has already started. Included in those retirements will be the sale, or inter-generational transfer, of millions of small businesses; they will require valuation work for multiple reasons, including the determination of effective tax strategies such as estate freezes and transfers.
Brooks would like to see more CGAs become CBVs. “This is one field that’s really growing,” she says. Moreover, it is lucrative. Starting salaries tend to be around $80,000 – reflecting the fact most new designates already have a professional accounting designation and reputation. Salaries can quickly rise to $200,000 and beyond.
“Some of our members are involved with large national and international deals, and are paid more by the hour than lawyers,” Brooks remarks. But while earning a CBV designation is unquestionably lucrative in terms of financial remuneration, “it’s not all about money,” she adds.
Goertz, who received her CBV designation in 1992, emphasizes that a key upside of her job is the “variety and challenge” that business valuation work presents. “Although some cases hang around for a very long time, it’s rare to find yourself doing the same thing twice.”
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