A business valuation is a key component that is required for a successful company sale. Both buyers and sellers may use the appraisal as a starting point for a sale negotiation. How much does a business appraisal cost? The expense can vary from $5,000 to $20,000 or more.
If you’re considering a business sale, you need to understand the factors that drive the cost of an appraisal, the methods used to perform an appraisal, and how a business broker can help.
UNDERSTANDING VALUATION APPROACHES
A small business appraisal cost includes the appraiser’s compensation, and possibly additional fees paid to specialists. For example, a professional staffing company may provide expertise on compensation levels, and an IP attorney can be used to value a patent or copyright.
The valuation cost may be a flat fee, or based on an hourly rate. Here are some other factors that can impact an appraisal’s cost:
Larger and more complex businesses are more expensive to appraise. A single entity is less expensive to analyze than a holding company.
Capital structure: Does the firm have common and preferred stock outstanding? How many classes of securities exist?
A firm that operates in multiple countries requires more work, and the industry’s regulatory environment is also a factor.
Appraisals that require multiple valuation approaches are more expensive, and an appraiser may use all three of the methods outlined below:
USING THE INCOME APPROACH
Business owners compare the cost of a particular asset with the revenue and profit generated by the asset. In a similar way, the income approach compares the benefits of owning the company (profits, increased value) with capital required and the risk of ownership.
APPLYING THE MARKET APPROACH
The appraiser will compare the company’s value to recent sales of other businesses in the same industry. The report will also consider sales of other companies of a similar size (total revenue).
CONSIDERING THE ASSET APPROACH
The balance sheet lists a company’s assets and liabilities, and this approach adjusts assets and liabilities to fair market value. An appraiser will assess the balance sheet accounts, and analyze the equity balance.
If the company for sale provides a level of synergy with the buyer, a buyer is more likely to make a higher bid.
An appraiser is likely to promote their credentials to potential clients.
REVIEWING APPRAISAL STANDARDS AND CREDENTIALS
Appraisers follow standards set by the Institute of Business Appraisers (IBA), and the American Society of Appraisers (ASA).
Qualified business appraisers comply with the Uniform Standards of Professional Appraisal Practice (USPAP), and experts who comply with USPAP requirements have a stronger justification for their findings.
Your appraiser may be an Accredited Senior Appraiser (ASA), Certified Business Appraiser (CBA), or a Certified Valuation Analyst (CVA). The AICPA, the organization for CPA professionals, offers the Accredited in Business Valuation (ABV) credential.
A business broker can help you find a qualified appraiser, and will explain the process in detail. The broker will also help you gather the records needed to complete the appraisal, and can work as a trusted advisor throughout the sale process.
HOW A BUSINESS BROKER CAN HELP
The brokers atRaincatcherhave worked on sales transactions with over 9,200 businesses, and they can provide a number of services to save you time and effort.
Meet with a Raincatcher broker, and have a detailed conversation about your business. A broker can identify strategies to improve your company’s performance before a sale, and those changes will increase the sale price of your business.
FINDING A QUALIFIED BUYER
Raincatcher’s brokers maintain a network of attorneys, accountants, and investors who are involved in sales transactions. Your broker can find potential buyers in far less time than an owner who is working alone. A broker can also determine if a purchaser has the financial means to buy your business.
FINDING THE RIGHT APPRAISER
Use Raincatcher’sCertified Business Valuationprogram to learn exactly how much your business is worth. This method is the highest standard of valuation, and the work is performed by a certified and accredited valuation appraiser.
The appraiser uses an unbiased approach, which removes any potential subjectivity, in order to reflect the true value of your business. Potential buyers and sellers are more likely to rely on this type of appraisal, and use it as a starting point for a negotiation.
You’ll need to provide a number of documents for the appraisal, including:
Financial statements for the past five years or more,
Forecasts and projections, including in your most recent planning efforts,
Organization charts, lists of products and services offered, and
Customer list, suppliers, and competitors in your industry.
Selling your business and obtaining an appraisal requires time and effort, andRaincatchercan make the process much easier.
MOVING FORWARD WITH CONFIDENCE
Lean on the expertise of a broker during each step of the process, including price negotiation. Move forward with confidence, and sell your business for an attractive price.Talk with a broker at Raincatcher today to plan your sale.
