Business appraisals are a fairly regular occurrence, especially when a company is changing hands or an acquisition is taking place. But what happens during the process? What should you expect in a good business valuation experience? Here's a quick look at how the process works, when you should be concerned and what to expect at the end of the appraisal.
What to Expect from a Good Business Valuation Experience
When you have a business valuation performed, the process starts by contacting a business valuation specialist, determining whether that specialist is a good match for your business and providing initial information. That information will usually include the reason you are seeking the appraisal, as different circumstances will require different methodology be used in determining value, some of which are required by law.
Why? Let's look at a few circumstances. If a business needs to be sold, is it a liquidation due to debts? Is it to determine the value for one partner to buy out the other over time? Is it for an entrepreneur who is planning on retiring in a few years and wants to get the best possible selling price? Each of these circumstances will have a different set of calculations made to determine value, because the length of time and potential to find the right buyer will vary in each case.
After the specialist has determined the circumstances, they will need information on your business' finances. Much of this information can be procured from your CPA or bookkeeper. Your financial statements, tax records and similar information can help determine where your business stands, both in general and when compared to other businesses in your industry.
Once your finances have been reviewed, the industry as a whole will be looked at by the specialist. If there is a difference between the market locally and the national market, that will also be reviewed to account for these differences. Then your business' financial information will be projected along the path expected by the market in general.
However, that's not the entire process. If your business has built up goodwill in the community or a solid reputation for excellence, that's part of the business value that needs to be accounted for. If you've developed a really amazing research and development department, that investment in innovation will have a very strong impact on your business' value.
But what about the people that make the best parts of your business? Good leadership can make all the difference between a strong, dynamic company and one that is just the same as every other one in town. Both internal leadership and external contact may be interviewed so that the specialist can account for the value they bring to your business.
What if something is missed? Any good valuation specialist allows time in the report preparation process if the business being appraised feels that the report doesn't reflect the true nature of the business or has missed something important. This allows the specialist and the appraised business to come to an agreed consensus on the business value and ensures that nothing is missed in the process.
Though going through a business appraisal can cause some apprehension, working with a good appraiser helps ensure you'll have a good business valuation experience. Working with a certified business valuation specialist helps ensure you'll receive honest results that will hold up well to scrutiny in legal, financial and insurance circles while providing documentation that will prove the value of your company.