Business valuation is a worldwide phenomenon. As an industry, it may not have the history…
By John Borrowman, CPC
Borrowman Baker, LLC, BV Staffing + Consulting
One of the key issues in today’s economy is outsourcing of work to foreign countries. Nearly everyone has an opinion about it, one way or the other. Is it possible that outsourcing will come to the world of Business Valuation?
We spoke with Frank “Buzz” Carr about his efforts to make outsourcing available to BV practitioners.
John Borrowman: How did you get started down this road?
Frank Carr: We originally started our business to facilitate trade back and forth between the US and India. Our model required us to develop a group of experts in India, including industry experts, financial consultants, investment banking consultants, and business strategists. Out of that came the idea of outsourcing certain financial, analytical activities to India. We thought that we could facilitate both speed and accuracy, and help practitioners reduce costs.
JB: What were the concerns you had when you first started exploring this process?
FC: Well, you always have a security concern. We don’t think that’s a problem because we’re dealing with top consultants who realize how critical security is.
JB: What would you say to address someone’s concerns over quality control?
FC: We think we have excellent quality control. What I would say is give it a try and see. It’s not hard to understand whether the work is being done correctly, whether the math is being done correctly, whether the ratios are being done correctly. Relatively simple tests can prove that out. Because we’re not asking our team in India to go and interview the client, anything specific that’s coming from the client to be worked on can be examined carefully when it’s returned. Keep in mind that we’re using these same people to do analysis for some of the top firms in the US who are contemplating taking businesses into India.
JB: How can a practitioner be sure you’re not going to steal clients?
FC: Our focus is not on doing valuation. Our focus is on doing business in India and facilitating business in India. We’re not contemplating staying in BV and have no interest in taking anyone’s clients. We’re also more than willing to sign confidentiality agreements.
JB: Assume that I’m a practitioner who is hearing about your service. What would be a type of engagement that would show me the value of your outsourcing?
FC: Probably one that is not terribly complicated is relatively straightforward and is not litigation. Any kind of work that really falls more into the category of general valuation for clients where somebody is trying to get a job done as much to get a number on a piece of paper as any other reason; where there’s not going to be any kind of litigation or adjudication involved. Maybe where somebody has to have a number for a buy-out situation, for example. Or, for gift and estate. Or a condemnation where there are a lot of guys doing it and price is sort of important. You want to make sure you have a good number, but it’s not going to involve litigation. It could be particularly good for the sole practitioner who wants to leverage his time, but doesn’t want to hire someone.
JB: Would this be of value to a firm that is well leveraged, in terms of giving them more juniors?
FC: Sure. Or, just in getting rid of your juniors and simply having individuals who are more senior and more experienced. The other thing that it does for a sole practitioner firm, or one that has a couple guys in it, is it frees them up to sell. This gives the practitioner more time to sell while transferring the grunt work over to India. That’s one of the reasons why we think the thing is so powerful. That, plus the cost component. We’re talking about, literally, a few dollars an hour to get this work done. And we’re talking about getting the work done by MBAs and PhDs, not your average college graduate.
JB: Could I just hand over an engagement to you and get a report back that I could review?
FC: You can’t outsource the whole valuation engagement. There’s probably 50% to 60% of any given job that you could outsource to India. You could have them do the comp analysis, spread the financials, do a lot of the things that are basic financial analysis. The elements that have to do with the specific company, like the client interview, have to be done over here. It’s too time consuming to attempt to educate the guy over there about the nuances of the firm and how it makes money.
Essentially, anything the “juniors” do here can be done in India. You have direct phone communications. Plus you have the time zone difference. You request something in the late afternoon and they do it overnight and you have it the next morning.
JB: If I came to you with an engagement, would you quote me an hourly rate? A project rate? What would I expect?
FC: I’m going to quote based on what we mutually work out. What we’ll do is figure out what we’ll want to have done and how much it would be. Initially, it would be on an hourly basis until we accumulate enough experience to be able to quote it on a project basis.
One of the options we have under consideration is to create “modules” for valuation professionals. One module might consist of spreading the historical financials of the client company. Another might be doing the comparable analysis. Another might be doing the economic analysis of the sector where the client company operated, or of the US economy. Each one would be, of necessity, things that would be reasonably easily achievable without having gone to visit the client. Basically, anything that can be done on behalf of business valuation that doesn’t require intimate knowledge of what the actual target company is doing. Also, we’re talking about publicly available information that can be accessed in India, using the same databases available to people in the US.
JB: Is there any particular engagement that you think is especially well suited to this outsourcing process?
FC: There are certain types of studies, like transfer-pricing, where it would be phenomenal. It really lends itself to transfer-pricing. I would expect about 80% of the applications in total would be in transfer-pricing and 20% in valuation. Those studies are often signed off on by PhDs. And the guys we have working on them in India are PhD’s. On a typical valuation assignment, you might have half of the work done in India. With transfer-pricing, on the other hand, you could have as much as 90% of the work done there. Also, the increased globalization will mean more and more transfer-pricing studies are being required. And when you’re talking about something that is compliance for the client, there’s price sensitivity. When you can save a Tax Director money, you can get his attention.
JB: You’re ready to take phone calls on this now?
For more information, contact Frank Carr at LaSalle Consulting Associates at 847-304-1676, or go to www.lasalleconsulting.com
Editor’s Note: Our goal is to highlight developments in BV practice management. This article should not be read as an endorsement of outsourcing. As with anything important to your practice, investigate carefully and make an informed decision.