Business appraisals are an integral part of the way business is done today. No one would buy a home or vehicle without knowing the fair market value of it. The same is true with business, whether large or small. Anyone looking to purchase a business of any kind will request a recent appraisal or valuation of the business. Every type of business in existence has a market value that can be assessed via means of appraisal or valuation.
Importance of Business Appraisals
The importance of business appraisals goes far beyond understanding what an existing business is worth. Entrepreneurs can use valuations of other businesses closely related to theirs to help them create a successful business plan. Smart entrepreneurs will learn from the mistakes as well as the successes of their competition. Existing business owners may use an appraisal to determine shortcomings of their business and improve upon them.
Official appraisals may be obtained from professional appraisers. Appraisals required for personal use may be done via computer software. Some software packages offer the ability to input your company's financial and other required information to produce a fairly accurate business valuation. In most cases, business appraisals used for buying or selling a business must be completed by a professional appraiser.
Business appraisers are not the same as real estate or equipment appraisers. A business appraiser has been disciplined in the ways of appraising businesses, not homes or equipment. Sometimes real estate and equipment fall within the lines of the business appraisal, in cases such as this, more than one appraiser may be required.
Business Appraisal Credentials
Much like doctors, business appraisers often specialize in a specific designation. Specific designations include: Certified Business Appraiser (CBA), Accredited Senior Appraiser (ASA), Certified Public Accountant Accredited in Business Valuation (CPA/ABV), Certified Valuation Analyst (CVA) and Chartered Business Valuator (CBV). Each designation carries with it different abilities and responsibilities. When searching for a business appraiser, check each designation carefully to determine the type of appraiser you require.
Assessing the Costs of Your Appraisal
Acquiring a business appraisal can be expensive, be prepared. An oral appraisal is often less expensive than a written appraisal but an oral appraisal isn't as valued to someone looking to buy your business. Appraisers have a set guideline they follow when appraising a business. Before choosing the best appraiser for the job you require, discuss your appraisal needs with your partners or advisors. Create a list of questions you need to ask potential appraisers. If your needs go beyond the scope of a certain appraiser's expertise, they may not be the appraiser you need to hire. Don't limit yourself to one appraiser. Keep your options open until you find the perfect appraiser for the job.
An oral business appraisal may cost under $300, especially if the appraiser is just getting started or is a broker with no appraisal designation. Specialized written appraisals can cost thousands of dollars, depending on the depth of the job and how many hours it takes to complete. Accredited business appraisers charge a minimum of $100 per hour and usually require at least two to four hours to perform the appraisal with an additional hour to explain it to the client. The entire oral appraisal may take as few as two hours or as many as six.
A written business appraisal costs a minimum of $2,500 to $5,000 in most areas. A written report is very in-depth and may take the appraiser up to fifty hours of work to complete. Expect a written appraisal to be approximately 100 pages of information. Very large companies may be looking at a cost of $10,000 for an appraisal.
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