When preparing to sell your business, arriving at an accurate valuation of your business should be one of your very first priorities. An accurate valuation is essential to establishing a fair offer price and negotiating a deal. This is where a professional business appraiser can be very helpful.
The purpose of an appraisal is to get a fair and accurate assessment of the value of the business so that you will know if you are asking, and receiving, a fair price. Many businesses do not sell because the asking price is much higher than the fair market value of the business. Others sell for less than the business is worth. If you are selling your business, an appraiser can help you avoid both of these unappealing scenarios.
Most small business owners do not solicit outside appraisals because of the initial cost. Instead, many sellers arrive at a price based on the selling prices of similar businesses an estimated value of their business based on assets and income. They then estimate other factors, such as experience and goodwill, and with the help of their accountant, arrive at an asking price. In the case of a very small, uncomplicated businesses, this can be fairly simple. However, for more complex businesses with varied assets, this can be more difficult, especially when putting value on intangibles like well-established customer relations and other skills and talents.
But professional appraisers have experience in evaluating a wide variety of businesses. They can help you arrive at an accurate value for the business’s assets, as well the value of intangibles such as goodwill, your customer base, intellectual property, and future profits.
An independent and impartial viewpoint is another benefit to hiring a professional business appraiser. The appraiser will look strictly at value and not include emotional attachment. This will usually result in a more accurate valuation than one conducted by the business owner, who will likely be emotionally invested in certain aspects of the business.
The best scenario is to hire a business appraiser long before you sell the business. An appraisal can give you insight into how to add value to your business. Just as people add rooms, patios, decks, and other features to their home for their own use and to increase the value of the house, you can increase the value of your business. By understanding the various factors that contribute to the value of your business and by knowing how and where you can add value, you will be able to position yourself more favorably as seller.
When hiring an appraiser, verify that the individual is licensed and whether he or she belongs to either the Institute of Business Appraisers (IBA) or the American Society of Business Appraisers (ASA). Ask for recommendations from other business owners before hiring someone. Appraisals can be either oral or written; written ones take longer to put together and are more expensive.
Ask for an estimate of the cost prior to the actual appraisal since costs vary dramatically. You should be able to have a small business appraisal done for anywhere from $500 to $5,000, depending on the credentials of the appraiser, the complexities of the business, the type of appraisal, and the market in which the business is located. Make sure you are dealing with a business appraiser, and if the cost sounds too high, choose someone else. The organizations mentioned above are good places to start gathering information.