“How much is my business worth?” It’s a question that every business owner agonizes over, especially when it’s time to transition or sell their business. For many business owners, their company is the cornerstone of their individual cash flow and retirement plan. Understanding what a business is worth can help a business owner make the correct strategic decisions to help facilitate a smooth transition or sale. However, when it comes to determining the value of their business, owners are often lost and unaware of the various types of valuation opinions and services that an experienced appraiser can provide.
As a business owner begins to think about transitioning their business, the typical first step is to get a sense of what the business is worth. Many business owners believe that their only option is a Full Appraisal, which can be expensive and take a long time to complete. In reality, business appraisers can provide various levels of advisory services, including a Limited Appraisal, that can be used for informational and planning purposes.
Compared to a traditional Full Appraisal, which provides an unambiguous opinion of value using all applicable procedures and approaches, a Limited Appraisal requires less analyses and can provide an estimate of value for a lower cost and a quicker turnaround time. A Limited Appraisal can give the business owner a sense of current market multiples, their business’s performance relative to industry peers, and an estimate or range of value for their business. This information is intended to be used for internal planning purposes and can help an owner assess various options for transitioning, gifting or selling the business. Additionally, Limited Appraisals can be used to provided estimates of value for:
- purchases of company shares by management or family members;
- planning or negotiations related to a merger or acquisition;
- issuing and selling phantom/restricted stock;
- establishment of buy-sell, cross-purchase or other agreements;
- intellectual property or patents; or
- preliminary estimates of value or damages related to partnership/marital disputes.
Moreover, if a Full Appraisal is necessary in the future, the time and cost associated with updating a Limited Appraisal can be lower. A Limited Appraisal may not be appropriate for every situation or purpose. In certain circumstances, such as estate and gift tax filings, a Full Appraisal may be required and it is essential that a business owner work with legal counsel and an experienced appraiser to determine the type of appraisal that best suits the business owner’s needs. When appropriate, however, a Limited Appraisal can be a powerful tool that can provide clarity for the business owner and help with a smooth and successful transition.
By Henry Kaskov, ASA ( firstname.lastname@example.org )
Henry is a Senior Associate with Sanli, Pastore & Hill, offering business valuations, forensic accounting, and a variety of other services. I’ve had the pleasure of working with Henry with a mutual client and their firm does an excellent job. The firm has office throughout the United States and globally. Henry works out of their Geneva, Illinois office. Thanks for contributing Henry!
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Have a great day, as always.