Determining Value — Choosing a Business Appraiser

Don’t Leave Business Valuation to Chance

Valuation is the process of determining the worth of an entity or item. According to Erin Hollis, “A valuation can be as loose as a guess, to a back-of-the-envelope calculation, to a formal opinion rendered by a third-party professional business valuation expert.” Knowing the value of your business can make or break a sale or other transaction. If you were asked what business value is, would you know? How could you find out?

To find out how much a business is worth, you may need to hire a business appraiser. An appraiser is a professional who provides a disinterested, independent opinion of value for a business. Appraisers can provide business valuations in the event of a sale, estate, or gift-planning issue, for tax purposes, for litigation, or in the event of bankruptcy or restructuring.

How do you decide who to engage, and how much should you expect to pay?

Hiring the Right Business Appraiser

You must determine what type of business appraisal you need and what measure of valuation you will use. There are various kinds of appraisal and valuation experts. When selling equipment, you will want to look for an equipment appraiser; when selling real estate, a real estate appraiser. But when selling your business as a going concern, you will want a business appraiser, also called a “business valuation expert,” to determine proper value.

Business Value Appraiser Accreditation

Many business appraisers or business valuation experts are accredited by a governing body and have received a professional designation. The appraiser has received training or has a certain level of experience in their specific field. This does not mean that an unaccredited appraiser is unqualified to perform the appraisal engagement. However, it may be a factor worth considering, especially in high-stakes situations such as litigation or bankruptcy.

Business appraisers with a professional designation are required to adhere to a code of ethics that requires “independence.” This means the appraiser is not an employee or agent of their client. A professional appraiser is retained as an independent expert and is an advocate only of their own professional opinion of business value. It is important to understand that this type of client relationship is different from relationships with the business owner’s attorney, accountant, or business broker.

The most widely recognized accrediting organizations and the credentials granted with accreditation are:

To further evaluate credential qualifications, you may wish to understand the requirements of each organization.

• Accredited Senior Appraiser (ASA) – This designation is granted by the American Society of Appraisers (ASA). That is a multi-disciplinary organization including members in real estate, business valuation, fine arts, machinery and equipment, and gemology The applicant must pass an ethics exam and a course and the Uniform Standards of Professional Appraisal Practice exam.
• Accredited in Business Valuation (ABV/CPA) – This designation is granted by the American Institute of Certified Public Accountants (AICPA). The AICPA is the national professional association for Certified Public Accountants (CPA) in the United States. The additional designation of ABV requires that members hold a valid CPA certificate and pass a comprehensive business valuation examination. The ABV credential may also be issued to non-CPA American Society of Appraisers (ASA) members if they satisfy AICPA valuation experience requirements.
• Certified Business Appraiser (CBA) – This designation is granted by the Institute of Business Appraisers (IBA). The CBA designation requires members to hold a 4-year college degree or equivalent, successfully complete at least 24 hours of IBA coursework, and pass a written CBA examination.
• Certified Valuation Analyst (CVA) –  This designation is granted by the National Association of Certified Valuation Analysts (NACVA). Candidates must successfully complete a Business Valuation and Certification course, the written exam, and 2 years of experience as a CPA.

Pricing

Of course, selecting a business appraiser involves comparative fee considerations. Accredited appraisers’ fees average $250 to $350 per hour. A written, formal appraisal report costs at least $5,000 to $8,000. On average, it takes  20-30 hours to complete the work, resulting in a 15 to 50-page report. However, depending on the purpose, scope, and complexity of the assignment, the cost can exceed $10,000. If the report must support litigation, as in bankruptcy litigation, costs may be significantly higher.

Ultimately, you will want to choose a credentialed appraiser best suited to your particular circumstances at a cost-effective and affordable fee. The individual chosen should be able to clearly communicate their appraisal results verbally and in writing. The results must detail the supporting approaches and methods for the final opinion. The measurable economic benefit to the client regardless of the purpose of the appraisal should justify the cost.

[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can listen to at your leisure and each includes a comprehensive customer PowerPoint about the topic):

• Selecting the Right Valuation Expert
• Roadmap to Selling a Business or Taking on Outside Investors
• What’s it Worth? Valuing a Business for Sale

This is an updated version of an article originally published on October 23, 2019. It has been updated by Courtney Smith]

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