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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 a
formal
business valuation or 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.
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.
About Author:
Ray Haiber
has 12 years experience as a professional small business
broker and franchise sales consultant. Visit here to request
a free preliminary
business valuation consultation about your business. You
can view and research a directory of top
franchises for sale across
the USA here. © 2010 |
