The first critical phase is to determine the purpose and objectives of the valuation because the objectives will determine the methods and approaches that will be used by the business valuation analyst. The purpose and objectives will be defined in the valuation services agreement that you will review and approve before our work begins.

Along with the purpose of the appraisal, you will specify the appraisal date, which is the date on which the value estimate is determined. The appraisal date may be dictated by tax planning strategies (such as in gifting shares), tax compliance (such as with estate tax returns) the courts (shareholder disputes or marital dissolution) or at your request (acquisition or divestiture of ownership interests).

It is important for you to understand that the results of a business appraisal will likely be different depending on the purpose and objective of the appraisal. For example, an appraisal performed for gift and estate tax purposes will typically include applying a discount for lack of marketability and, if for a minority-ownership interest, a discount for lack of control. However, some state laws presribe whether discounts are allowable in shareholder disputes, so for arbitration or mediation appraisals these discounts may not be allowed.

The appraisal services agreement, sometimes referred to as an "engagement letter", is provided to you for review and approval. The agreement includes specific information on the following, which is unique to each situation and purpose of the appraisal: