By Terry Silver
Special to the Legal
At the appropriate stage in the business valuation process, an interview of company management is necessary, and required by business valuation standards. The interview should be scheduled at the point when the valuation analyst has received and analyzed sufficient company data to render the interview most meaningful, and should be conducted on the company premises.
The inception of the business valuation process involves the procurement of specific company documents such as financial statements, income tax returns, entity formation and governance documents, etc., referenced collectively as discovery. Once there has been adequate discovery production, the valuation analyst should record and trend relevant data, and become familiar with the company being valued and its specific industry. It is only after adequate preparation that the valuation analyst is ready to meet and interview company management and owners. I recommend having an additional person to record the responses of the interviewee, if possible.
In preparation for the management interview, the valuation analyst will usually begin with a questionnaire containing typical business valuation inquiries, after having made modifications relevant to the specific company being valued. When I create a questionnaire to conduct a management interview, I am mindful of whether the interviewee will be cooperative or combative, and structure and pose my questions accordingly. Even with a recalcitrant interviewee I usually achieve my desired results via:
- An explanation of what I am doing and why.
- Keeping my questions on point.
- Consistently maintaining a professional, but firm demeanor.
- Setting a realistic time span for the interview.
- Being respectful of the interviewee and the time he/she is devoting to the process.
- Not allowing myself to be deterred from the process.
As in any interview, my questions must be open-ended to solicit a full response. Questions that yield “yes” or “no” responses should generally be avoided. In my experience, questions that solicit responses that can lead to unscripted questions represent opportunities to gain important information. Scripted questions will yield valuable information, but being better prepared allows the valuation analyst to contemporaneously move off script. It is the new and additional follow-up questions that usually provide a deeper insight into the company, its industry, its management and its overall condition.
The questions posed should be meaningful for the process; making insignificant inquiries will lead to a breakdown in the interview. Questions not adequately answered must be asked again, either in the same form or restated. An interviewee who is disposed to be uncooperative will attempt to avoid making meaningful responses. In my experience, many interviewees will eventually respond to an interviewer using a very persistent approach.
The management interview for a business valuation begins as a science and maintains many scientific aspects, although the ability of an interviewer to be patient and react to ongoing events represents the art of the interview.
Terry Silver is a certified public accountant, certified valuation analyst and certified in financial forensics for Citrin Cooperman, an accounting, tax and business consulting firm in Philadelphia, where he is a partner with more than 33 years of experience as an accountant and auditor. He focuses his practice on business valuation and financial forensic services, expert testimony and matrimonial actions. He can be reached at firstname.lastname@example.org or 215-545-4800.