At one point or another most successful business people face the dilemma: do I figure out the business value by myself or outsource the project to an outside appraiser? The decision may depend on the reason why you need the business appraised.
Consider a strategic investment opportunity where all or part of an existing business if up for sale. The investor is ultimately responsible for making the decision on whether to invest, how much to invest, and for what share of business ownership. You may need to go through a number of what-if scenarios that involve different investment strategies before choosing the right one. Valuation itself will most likely be an iterative process where you consider a number of scenarios under different assumptions.
Going to an outside business appraiser is probably not a good choice here. The appraiser usually sells time and performs valuation under one set of assumptions. Considering different ways of approaching business acquisition is likely to be prohibitively costly and time consuming. At the end of the day, the decision to invest and how to structure your investment rests upon your shoulders.
In other words, business investment is an area of strategic decision making for a business person. Knowing the value of business investment is critical to making the right decision. That is one reason professional business investors such as venture capitalists usually perform their own business valuations.
Now consider a case of legal dispute, such as a divorce. Here, the accuracy of business valuation is less important than a legally binding agreement between the parties. To resolve the dispute, the judge is likely to appoint an independent business appraiser. The number for business value may not be highly accurate, but it is still enforced by the court. All the parties can do is abide by the judgment.
Here, the use of a business appraisal service is a necessity. The court is unlikely to accept business valuations from either party as biased. The independent business appraisal is called for as a compromise.
Other situations may not be as obvious. As a general guideline, a scenario where you largely control the outcome is best addressed with you having full knowledge and understanding of business value. In addition to business investments, partner buy-sell agreements and owner insurance coverage are good examples.
If, on the other hand, the situation involves parties with very different views, an independent business appraisal may be needed. In addition to legal battles, tax disputes and rigorous lender negotiations are typical examples.