What is a Business Valuation or Business Appraisal?
Many individuals wonder what a business valuation or business appraisal is and why one would get one.
This article discusses the following aspects:
- What is a business valuation or business appraisal?
- What does a business valuation or business appraisal include?
- Why does someone need a business valuation or business appraisal?
- How do you find a business appraiser?
What is a business valuation or business appraisal?
A business valuation or business appraisal is a report that details the value of a business and how the value of the business was determined. A credential business appraiser performs a business valuation or business appraisal. A business appraisal can be used for a variety of reasons. This can include business transactions, partner ownership, taxation, among others. A valuation expert values the business using a variety of methods and approaches.
What does a business valuation report or business appraisal include?
In brief detail, there are a variety of important aspects a business valuation report includes. First off and most importantly a business valuation report provides a conclusion of the value of the fair market value of a company. This value is often a range. A business appraisal also provides a detailed explanation of why the business is valued that why and supporting evidence. Below are a few of the basic aspects of a business valuation report:
- Name of company and interest being valued
- The effective date of the report
- Purpose and intent of the report
- Valuation methods and approaches
- Discounts and other considerations and assumptions
- Financial, economic, and industry analyses
- Conclusion of value
For more detailed information, read Business Valuation Report Made Simple.
Why does someone need a business valuation or business appraisal?
There are several instances in which a business valuation or business appraisal is useful. Below are a few of the scenarios in which someone needs a business valuation.
Selling a Business
Knowing the value of your business prior to selling is key. A business appraisal can help you determine a list price that isn’t too high or too low for potential buyers. Understanding the value of your company and what drives the value can help you better position your business for sale. A business appraisal can also help when it comes to negotiating the purchase price. It is one of the best cards you can have in your hand to get a fair value for your company and maximize your return. If you are considering selling your business, get started today by scheduling a free consultation!
Buying a Business
When buying a business, you want to feel confident in the purchase price and the terms of the purchase agreement. A business appraisal is an important part of the due diligence process. Peak Business Valuation, workers with several buyers each week to provide a business appraisal. Doing so gives the buyer a comprehensive understanding of the business and what drives the business value.
Obtaining Financing – SBA Business Valuations
Next, obtaining financing is often a large part of buying or growing a small business. Specifically for SBA business valuations, an independent business appraisal is required if the amount being financed is greater than $250,000. Or, there is a close relationship between the buyer or seller. Peak Business Valuation, business appraiser, works with dozens of SBA lenders across the country providing SBA business valuations. Peak’s SBA business valuations are accurate and provided in a timely manner to help close your SBA loan faster. Learn more about SBA business valuations by scheduling a free consultation.
Gift and Estate Planning
Another reason individuals obtain a business valuation is to assist with gift and estate tax planning. For many business owners, 80-90% of their net worth is their business. As such, a business valuation can help when gifting shares of the business and planning for estate taxes. Having a plan in place and knowing the value of your business can help you adequately plan for the future.
Growing a Business
Last, many individuals seek a business valuation or business appraisal to help grow their company. A business valuation gives insight into the strengths and weaknesses of your company. It also identifies key value drives and how a potential buyer will view your business. A business appraisal can help in identify strategies to grow your small business.
How do you find a business appraiser?
A credentialed business appraiser is important in receiving a quality business valuation. You want a professional who can provide an independent opinion of value. One of the best places to find a business appraiser is by asking for recommendations. Your financial professional, legal representative, or anyone who recently received a business appraisal can be useful. By searching online, you can also find a business appraiser in your industry or geographic area.
Most business appraisers have a designation after their name as a result of their experience or education. Some of these credentials include the ASA, ABV, CBA, or CVA. For more information on credentials, see Finding a Business Appraiser.
The best way to select a business appraiser is to interview them and see if they are a good fit. A credentialed and effective business appraiser will take the time to learn about your business, thoroughly explain the process, and ask/answer questions.
Peak Business Valuation is the most rated, highest reviewed business valuation firm in the country. We love working with individuals to provide business valuations and helping them understand the fair market value of a company. We focus on providing business valuations for companies between $1-$10 million. However, there are dozens of business appraisers across the country. If we are not a good fit for your needs, we will happily connect you with a business appraiser who is.
Schedule Your Free Consultation Today!