If you are looking to appraise a business, you have two basic choices:
- Hiring a professional business appraiser.
- Doing your business appraisal yourself.
Obviously, professional help comes at a price. What can you expect to spend
to get your business appraised?
Business appraisers charge by the hour, with average hourly fees being $250 to $300. A professionally done business appraisal takes around 20 hours or more to complete. You will receive a business appraisal report detailing the work done and business valuation results expressed as the professional’s opinion of business value.
If you do the math, a professionally prepared business appraisal will set you back $5,000 or more.
Most business appraisals are done on a “limited scope” basis. This means that the business appraiser accepts your company’s financial statements and operational data as true and accurate. Typically, no site visits are involved.
If you need a full scope, comprehensive business valuation, the business appraiser will audit the financials, review the business operating and marketing documents and conduct extensive site visits. The costs of such a business appraisal can easily run upwards of $30,000.
Be wary of “cheap substitutions”
While there is wiggle room on professional fees, you don’t get a reliable, quality business appraisal for a minimum wage. To put things in perspective: $300 buys about 1 hour of professional’s time. This is barely enough to review your financial statements, let alone do a proper business appraisal.
Where are the costs?
In a typical assignment, most of the business appraiser’s time is spent on:
- Understanding your business and its economic prospects.
- Analyzing your financial and operational records. The appraiser then “recasts” your financials for use in business appraisal.
- Communicating with the client.
Some additional costs: regular business re-appraisals and consulting fees
Many business appraisals need to be repeated on a regular basis. An example is a partner buy-sell agreement – business is typically re-valued at least yearly. Needless to say, you will incur additional costs for each business appraisal prepared for you.
Business appraisal is not worth much unless the client understands it and can use it. Often, business appraisers act as consultants to interpret their results – to the client’s partners, tax authorities, courts and parties to a business sale transaction. Again, the client bears the additional costs every time.
Appraising your business yourself – the benefits of knowledge
There are several reasons you can save a bundle by appraising your business yourself:
1. You use your knowledge of the business and its market – no need to educate the appraiser.
2. You can calculate your business value by using the same well-known business valuation methods the professionals use. All you need is the right tools.
3. You eliminate the costs of having the appraiser communicate and interpret your business valuation results. The knowledge of what your busines is worth – and why – is yours.
Even more importantly, knowing what your business is worth puts you in a strong position in a number of situations:
I. You can negotiate with business partners and lenders, prove your point to an investor, and make your case to tax authorities.
II. You can spot opportunities to increase the business value before making a critical decision, such as buying or selling the business.
Appraising your business – tools for the job
Business appraisers use standard methods in their work. So can you. Well-designed business appraisal tools, such as ValuAdder business valuation software and Report Builder help you in 4 essential ways:
1. Organization: You can get through your business appraisal easily by following a well-established business valuation process.
2. Information: Learning & Info Center and Business Valuation Handbook give you the essential know-how on choosing and applying the business valuation tools effectively. Making informed choices is critical to an accurate business appraisal.
3. Time-saving tools: You can calculate your business worth using the standards-compliant business valuation methods the professional appraisers use.
4. Standard reporting format: You can present your business valuation results in a professional report format. Compliance with important standards such as USPAP and AICPA SSVS is expected from any serious business appraisal report.