I write different reports for different readers. Before I start writing, I ask myself “Who is the most important reader of this report?”
In a price allocation for financial reporting, the most important reader is the client’s auditor, who will almost certainly be knowledgeable about valuation. In a selling price analysis for a small business, the most important reader is the prospective buyer, who may not know anything about valuation. Tax-related valuations fall in the middle: IRS agents have varying knowledge levels.
I write to the knowledge level of the most important reader. I write more briefly and cogently to knowledgeable readers than I do to those with less knowledge, for whom I add explanatory details and highlight crucial assumptions and explanations in bold type. There is a tradeoff between brevity and clarity: briefer reports may not be as understandable as longer ones, but longer ones risk wasting knowledgeable readers’ time. I designed my report templates for less knowledgeable readers. I reduce or eliminate explanatory details for knowledgeable ones.
I ask all readers whether my report was too brief or long, and whether it provided sufficient explanation. The ongoing feedback allows me constantly to tweak my templates to achieve brevity and clarity.
Here are useful recent reader comments that led me to (I hope) be briefer and clearer:
1. An IRS agent mentioned that, with the publication of the IRS DLOM Job Aid for Valuation Professionals, they are aware of the relevant market studies’ strengths and weaknesses. If I cite them in a summary table (rather than regurgitating all of the details), that is all they need. (THEN they can challenge my conclusion!)
2. A sophisticated CFO asked me to explain the table row and column labels and calculation formats in my report. He was kind enough to suggest changes. The improved version was something I never would have developed myself!
3. Another CFO’s comment was exceptionally illuminating. He understood my report (a Section 409A valuation for option grants) and proved it by asking sharp, relevant questions. Then he said that the most important readers of the report were the company’s directors, many of whom had little valuation knowledge. He did not want me to expand my report, but he did ask me to go through it with him in detail so that he could answer anticipated questions. He also asked me to attend the board meeting, and he did such a great job with his explanations that I had nothing to add!
4. In an estate tax valuation, the attorney said right up front that she was a stickler for language, demanded that everything be just so, and told me to expect to go through perhaps half a dozen revisions (just on language). She was certain that the estate tax return was going to be audited (because of issues unrelated to the business I was appraising) and wanted a “bulletproof” report. She understood that no appraisal is bulletproof because there are always subjective judgments, but she wanted to make sure there were no other (admittedly nit-picking) weaknesses. I appreciated her candor: we went through 17 revisions, but I knew what to expect, that it was not personal, and the report that emerged was, at least in language, one of the best I have ever produced!