Valuing and Selling Your Business: A Quick Guide to Cashing In (2014)
APPENDIX A. Sample Engagement Letter
January 30, 2015
Charlie Sample
Chairman & CEO
Fantastic Footballs, Inc.
Sample, Ohio 99999
Dear Mr. Sample:
We appreciate the opportunity to provide you our valuation services. This letter outlines our understanding of the terms and objectives of the engagement.
We will perform a valuation of your common stock interest in Fantastic Footballs, Inc. for business and estate planning purposes. Our valuation will include a per share value on both a controlling and noncontrolling interest. The date of the valuation will be as of December 31, 2014.
We will provide you with two opinions of value. The standards of value that will be used in this engagement are “fair market value” and “investment value.” The term “fair market value” is defined as follows:
The price at which the property would change hands between a willing buyer and a willing seller, neither being under a compulsion to buy or sell and both having reasonable knowledge of relevant facts.
The term “investment value” is defined as follows:
The price to a specific buyer or investor often based on perceived synergies when the business is combined with another business.
We plan to start the engagement when your staff is available to provide us with the requested information, and unless unforeseen problems are encountered, we will provide you with a report draft within 45 days of receiving all requested documents.
In performing our valuation, we will be relying upon the accuracy and reliability of the operations’ historical financial statements, forecasts of future operations, or other financial data. We will not audit, compile, or review those financial statements, forecasts, or financial data and will not express an opinion or any form of assurance on them. Our engagement cannot be relied upon to disclose errors, irregularities, or illegal acts, including fraud or defalcations, that may exist. At the conclusion of the engagement, we will ask you or any authorized official of the Company to sign a representation letter on the accuracy and reliability of the financial information used in the engagement.
We will document the results of the engagement in a full valuation report. We understand our valuation conclusion will serve as a basis for the stated purpose in this letter, and the distribution of the report is restricted to this purpose and will not be used for any other purpose or by any unintended user, or with respect to any other date. We have no responsibility to update our valuation report for events and circumstances that occur after the date of its issuance. If for any reason we are unable to complete the valuation engagement, we will not issue a report as a result of the engagement.
Our method of valuation follows the guidelines set forth by the Internal Revenue Service (IRS) in its Revenue Ruling 59-60, as well as conforming to the appraisal standards promulgated by the American Society of Appraisers and the American Institute of Certified Public Accountants.
The fee for our valuation service and the final report will be $ XXXX. We will send you progress invoices on a monthly basis. All invoices will be due and payable upon receipt. Our fee is for the valuation report and does not include any other services that may be required to issue our report (e.g. equipment appraisal). We will require a retainer of $XXXX before we proceed with this engagement. All invoices will be due and payable upon receipt. A service charge of 1½ % per month (18% per annum) will be added to past due balances. We will not issue the final report until the balance is paid in full. We appreciate this opportunity to be of service to you and look forward to working with you on this important engagement. If you agree with the foregoing terms, please sign the copy of this letter in the space provided below and return a signed copy back to us.
Sincerely,
Tim McDaniel, CPA/ABV, ASA, CBA
Director of Valuation & Succession Planning Services
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Signature
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Date