Business valuations range widely in scope and complexity, and therefore range widely in cost. A straightforward business valuation for a small business with a single location, simple ownership structure, and complete financial information will typically cost between $3,000 and $8,000.
As complexity factors are added (such as complex ownership structures, multiple related entities, or inconsistent financial information), even small business valuations may approach or surpass a five-figure fee to account for the additional time and expertise required of the appraiser.
Valuations of midsize businesses are also more likely to incur higher fees, although complexity and the intended use of the valuation are generally more important cost drivers than revenue alone.
Understanding what drives the cost of a business valuation can help a client determine what type of valuation they actually need and what information an appraiser will need to complete it.
What Determines the Cost of a Business Valuation?
There is no standard fee that applies to every business valuation. The amount of work required depends on several factors.
Size and Complexity of the Business
Business size matters, but complexity often matters more.
A company with $20 million in revenue and straightforward operations may be easier to value than a much smaller company with several related entities, numerous adjustments to the financial statements, or multiple lines of business.
The appraiser must understand how the company generates revenue, as well as its expenses, assets and liabilities, ownership structure, and the risks associated with the business. The more complicated those factors are, the more time and expertise required of the appraiser.
Quality of the Financial Information
Complete and well-organized financial statements and tax returns will generally make the valuation process more efficient. Typically, an appraiser will request several years of historical information, along with current year-to-date financial information. Depending on the assignment, additional information may also be required.
If the information is inconsistent or incomplete, the appraiser will need to spend additional time reconciling the information which underlies the valuation. This additional work may require additional fees.
Adjustments to Earnings
The earnings reported on a company's financial statements do not always reflect the company’s normalized economic performance for valuation purposes.
The financial statements of closely held businesses often include owner-specific or discretionary expenses that may require adjustment for valuation purposes. For example, a privately held business may have owner compensation that differs from market compensation; personal expenses may be incurred through the business; nonrecurring expenses, related-party transactions, or unusual income or expenses may also appear on the company books.
An appraiser must determine which adjustments are appropriate rather than simply accepting every proposed add-back. A company requiring significant normalization of its financial statements will generally require more analysis than one with relatively straightforward financial operations.
Purpose of the Valuation
The intended use of the valuation can have a significant impact on the scope of work.
A valuation performed for internal planning may have different requirements than one prepared for estate and gift tax purposes, litigation, a shareholder dispute, an SBA-related transaction, or another matter involving third-party reliance.
The appraiser should understand the intended use before determining the appropriate scope of work and fee.
Is a Calculation of Value Less Expensive Than a Business Valuation?
For the right situation, a calculation engagement can provide a useful indication of value at a lower cost.
A calculation engagement generally involves a more limited scope of work than a full valuation engagement. The specific procedures performed are more limited than those required for a full valuation, which can reduce the time and cost of the engagement.
However, a calculation is not appropriate for every assignment. If the valuation will be relied upon by a court, taxing authority, or another third party, a more comprehensive valuation may be necessary.
The least expensive report is not necessarily the least expensive solution if it does not satisfy the intended purpose. The client may end up needing to re-incur the engagement expense if the original scope of work was insufficient for the client’s needs.
Are You Comparing the Same Scope of Work?
Business valuation fees can vary substantially between firms, even when the appraisers are valuing the same company. In many cases, the difference in fee reflects a difference in the scope of work rather than simply a difference in price.
Two proposals described as a "business valuation" may involve very different levels of analysis. One assignment may include detailed financial analysis, normalization of earnings, research regarding the company and its industry, consideration of applicable valuation approaches and methods, and analysis of the company-specific factors that affect value.
Another assignment may rely more heavily on information provided by the client, industry rules of thumb, or a limited application of market multiples, with considerably less analysis supporting the conclusion.
For this reason, clients should understand what is included in a valuation proposal before comparing fees. The appropriate scope will depend on the intended use of the valuation and the level of analysis required for that particular assignment.
A qualified appraiser should be able to clearly explain the proposed scope of work, the type of report being provided, and any significant limitations so the client can determine whether the engagement will meet their needs.
How Can You Get an Accurate Business Valuation Quote?
A client must be willing to share information with the appraiser in order to receive an accurate scope and fee proposal for a business valuation.
At a minimum, the client will need to describe the type of business, approximate revenue, ownership structure, purpose of the valuation, valuation date, and any unusual circumstances that could affect the assignment.
The appraiser may ask for recent financial information and a brief discussion prior to submitting a proposal. If the client is uncomfortable sharing confidential information prior to engagement, the appraiser will typically be willing to sign a non-disclosure agreement (NDA).
The Bottom Line
The cost of a business valuation depends primarily on the complexity of the business, the quality of the financial information, the amount of analysis required, and the intended use of the report.
For most clients, the better question is not simply, "What is the cheapest business valuation?" Valuations can be completed cheaply, but the level of diligence and analysis may not meet the needs of the situation.
The appropriate question is therefore, "What scope of valuation do I need for the decision or situation I am facing?"
Common Questions
How much does a small business valuation cost?
A straightforward small business valuation will typically cost between $3,000 and $8,000. Businesses with complicated ownership structures, multiple related entities, incomplete financial information, or other complexities may require a five-figure valuation fee.
Why do business valuation fees vary so much?
Business valuation fees reflect the amount of analysis required to develop and support the valuation. Complex ownership structures, multiple business entities, inconsistent financial information, significant adjustments to earnings, and assignments involving third-party reliance can all increase the scope of work and the resulting fee.
Can I get a less expensive calculation of value instead of a full valuation?
In some situations, yes. A calculation engagement has a more limited scope than a valuation engagement and can therefore be less expensive. Whether a calculation is appropriate depends on the intended use of the valuation and the requirements of any third parties who will rely on it.
What information is needed to get a business valuation quote?
An appraiser will typically need to know the type and approximate size of the business, its ownership structure, the purpose of the valuation, the valuation date, and any unusual circumstances affecting the assignment. Recent financial information may also be requested before a final scope and fee are provided.
Does the size of a business determine the cost of the valuation?
Not necessarily. Larger businesses often require more valuation work, but complexity can be more important than revenue alone. A larger company with straightforward operations and good financial records may require less work than a smaller company with multiple entities, complicated ownership, or significant financial adjustments.
Why shouldn't I simply choose the lowest-priced business valuation?
Two valuation proposals may involve substantially different scopes of work. A lower fee may reflect fewer procedures, less financial analysis, or a more limited report. Clients should compare the scope of work and make sure the valuation will be appropriate for its intended use before comparing fees alone.