|
As a
professional small Business Broker I am occasionally asked
by some small business owners when and what are the
appropriate times or reasons to have a formal business
valuation or appraisal performed. Although I can often give
small business owners a general idea (using traditional
pricing guidelines) about what their existing business might
be worth for selling and listing purposes, there are many
times when having a more formal business appraisal performed
by a professional appraiser is much more appropriate and
prudent. Below you will find a list of some of the most
common scenarios that you should consider having a
professional and independent appraisal performed on your
business.
Legal
& Litigation Issues:
Unfortunately it’s a fact of life that if you own a small
business there is a decent chance at some point you will
need to have a business appraisal performed for some legal
purpose. In my experience as a small business broker the
most common legal issues that precipitate the need for an
appraisal are personal divorce and partnership disputes.
Less common reasons would include shareholder disputes, the
establishment of an ESOP (Employee Stock Ownership Program),
and eminent domain related issues. Regardless of the
specific legal issue, an appraisal report created by an
independent and professional small business appraiser is
often one of the most important tools used (and often
required) to help settle or resolve small business legal
issues.
Tax Related
Issues:
Tax
related issues such as gift and estate planning will require
a detailed
business valuation report to be prepared and updated on
regular basis. Generally it’s considered prudent to have a
valuation prepared in advance to help address the inevitable
transfer of ownership that will occur at some point down the
road as well as possibly help mitigate any tax burdens due
to the owners passing. It’s prudent to always consult with
your financial adviser and CPA as well when doing estate
planning.
Small
Business Financing:
I can tell
you from experience that most small business lenders will
automatically require a detailed business appraisal
performed as part of their due diligence before approving
financing for any number of reasons. A third party
and professional appraisal can also be an important tool to
have on hand when an owner is seeking new partners or
private investors to help grow the business. Having a recent
appraisal report included in your presentation package could
help validate your business model and show your potential
new partners or investors that you are well organized and
mean business.
Business
Sale or
Acquisition:
Whether you
are selling or buying a small business having a professional
and independent appraisal or valuation performed can be very
helpful indeed. For sellers an appraisal report can be used
to help validate and support the asking price of your
business which will ultimately maximize your return on
investment. For buyers an independent appraisal report can
potentially be very helpful when negotiating the final sales
price and terms of a business acquisition. It can also give
you peace of mind that you are not grossly over paying for a
business. A third party appraisal report is also
indispensable when determining the value of a business in
preparation for negotiating the terms of a potential partner
buy out as well. |
