Business Valuation Blog | Understanding Buying / Selling a Company

While it is never a bad time to update the value of your company, here are a few of the more important reasons to do so:

Purchase or Sale

Whether you are considering selling a business or have an interest in acquiring one, obtaining a certified, independent valuation should be at the top of your to-do list.

Transfer of Ownership

One day, you realize it is time to consider retirement and develop an exit strategy, while allowing a key employee or family member to take over. To properly transfer ownership in this type of transaction, a business appraisal is required to accurately reflect value and determine a fair process to accomplish this ultimate business goal.

Partner Dispute and Divorce

In either situation, a dispute can become combative, with both sides seeking fair treatment in the process and on their own terms. In all likelihood, the parties will have different opinions; therefore, engaging an experienced, certified appraiser to resolve and negotiate the terms more effectively is a wise decision.

Estate Settlement

When a business owner or senior partner passes away, it can become complicated, especially when there are multiple investors and heirs to the business, who may have different goals for the settlement of their shares. Some may want to liquidate, while others might decide to continue and take over operational control. Determining partial ownership interests through an independent appraisal will help address these issues so the business and shareholders don’t suffer.

Merger/Acquisition

If your business is being combined with another as part of a merger or acquisition, the due diligence process will involve an appraisal of the company and its underlying assets. There are formal accounting principles and guidelines in place to complete this effort that an appraiser will follow to ensure the transition goes smoothly.

Liquidation

There may come a time when the business is not operationally profitable, and you decide to sell the assets on an as-is, where-is basis, in this case. Understanding and estimating the value of these tangible and intangible assets will be critical in this circumstance.

In summary, regardless of the reasons for a business valuation, it is always a good idea to better understand the current value from an unbiased perspective. Take the extra time to work with a professional appraiser to accomplish this goal.

If your company needs working capital or you are considering expansion, obtaining a business loan may be the most straightforward approach. During the process, potential lenders may require an independent valuation to ensure the deal is secure. Here are some thoughts on how best to approach this important step towards having your request approved.

If your loan is backed by the Small Business Administration (SBA) or a similar government program, it will often require an appraisal. SBA loans cannot exceed the appraised value of the business, inclusive of any owned real estate or equipment assets. Private bank lenders may also have similar guidelines for business appraisals to obtain financing approval.

Ultimately, an appraisal protects both your interests and those of the banks. It may not make financial sense to acquire more debt than you need or more than what your business is worth. It is also advantageous to understand your company's true market value and have a few financing options in place before you close on a deal.

As the business owner seeking the loan, you should explore multiple options, including 2-3 local banks and even the possibility of raising the funds through private equity investment, especially if there is a shortfall to the bank's approval amount.

As for finding the right appraisal firm, the bank may select its own to complete the appraisal, or ask you to take the time to research and engage with one. In both cases, ensure the appraiser is certified and has sufficient training, knowledge, and experience to complete the valuation.

The professional appraiser will conduct independent research on the business and review your documentation to estimate the company's value. They will rely on commonly accepted methodologies, such as the asset, income, and market approaches.

As the business owner, you will need to facilitate the process by working with the appraiser and providing the required documentation while answering questions specific to your company's history and future outlook.

Once the valuation is complete, a report will be prepared and submitted to you and the lender. You should carefully review it to better understand the factors contributing to the business value, including associated goodwill and tangible assets. Down the road, consider using the report for assistance in insurance, tax, and accounting purposes.

In summary, while it's always a good idea to stay current with your firm's valuation, it will likely be a critical requirement to secure the funds needed for its continued growth and success.

Every business has driving factors that determine its success. Key variables that have to work in order to be considered a winner. It’s important to take a hard look at your company and understand exactly which factors drive these outcomes so you can continue to maximize their positive impact on revenue and net income.

What components of your business are making the biggest difference to your bottom line?

Here are some possible drivers:

• Marketing variables such as website optimization (SEO), social media messaging, and a strong sales team.
• Unique product development that sets you apart from your competitors and allows you to provide customers with better pricing and more effective performance.
• Consistent client communications and commitment to the timely delivery of your products and services.
• A strong reputation in the market based on many years of experience, expertise, and proven results.

It might be a combination of these variables, or something even more distinctive, that creates the value added that separates your business from all others in your industry.

As a business owner or leading executive, it is imperative that you have a strong understanding of what these factors are. You can then discuss each one in detail with employees, service providers, and suppliers. Bring in your outside consultants and service providers, such as accountants, financial institutions, and investment advisors, and discuss how these advantages can support future growth and investment.

When independently valuing the business, or when contemplating a merger or sale, inform your appraisal professional and advisors about these success drivers so they can highlight and factor them into their analysis.

Everything may not be black and white, and it may not be easily determined on your balance sheets and financial statements; therefore, it’s vital to create a straightforward way to break down the numbers further and show interested parties how it all works in the day-to-day operation.

In summary, by understanding these winning formulas and knowing how to highlight them in your business model, you will create ongoing opportunities both internally for growth and sustained success, as well as future investment, partnership, and eventual sale.

Valuing a minority ownership interest in a small business is one of the more nuanced challenges in business appraisal. While the overall value of the company is important, a minority interest (less than 50%) valuation will consider additional factors that can significantly impact value.

Regardless of the minority interest percentage being appraised, you must first determine the total value (100%) of the business as a going concern. Once this is established, the next step is to determine the value of a fractional ownership interest, recognizing that minority shareholders typically lack control over key business decisions. Two key discounts will generally apply when valuing minority interests: Lack of Control and Lack of Marketability.

Lack of Control considers that a minority owner cannot set salaries, declare dividends, sell the business, or make strategic decisions. Because of these limitations, buyers usually pay less for a minority interest compared to a controlling interest.

The Lack of Marketability discount reflects the fact that the company is not public and that small-business ownership interests are more illiquid, meaning there is no immediate, ready market to sell them. This discount reflects the additional difficulty and time required to convert that ownership into cash.

Together, these discounts can materially reduce the value of a minority interest compared to a pro-rata share of the company's total value.

The purpose of the valuation may influence how these discounts are applied. For example, in estate and gift tax valuation, the IRS typically recognizes appropriate discounts if properly supported. In shareholder disputes or buy-sell agreements, the level of control and the agreement's terms may determine whether discounts are allowed or excluded. In divorce or partner buyouts, state laws and court precedents can affect how minority interests are valued.

A qualified appraiser should carefully consider the legal and practical context before applying any discount.

Valuing a minority interest blends quantitative analysis with informed professional judgment. Appraisers must understand both the numbers and the realities of private business ownership. A well-supported valuation not only withstands scrutiny from courts, auditors, or the IRS but also provides minority owners and their partners with a fair, transparent basis for negotiation and decision-making. Working with an experienced certified business valuation professional ensures that these potential discount factors are properly addressed and the result reflects true economic reality.

Business owners may occasionally require a certified valuation in transactional situations and typically respond in a reactive manner to complete the task. Few, however, realize how crucial it is to keep that valuation current. An appraisal provides a snapshot of your company’s worth at a specific moment, but business value is never static. Market conditions, operational performance, and industry trends are constantly changing. Obtaining an updated business valuation annually is a smart and strategic move for many reasons.

Even if your business has a stable track record, the factors that drive its value rarely stay the same. Revenue may rise or fall, new competitors may enter the market, or industry multiples could shift. An annual valuation update captures these changes, ensuring you always have a current and accurate understanding of your company’s financial position.

Current information is critical for decision-making. Whether you’re budgeting for growth, considering expansion, or evaluating a potential merger, an updated valuation provides the foundation for sound strategic planning. It can also help measure whether past initiatives continue to add value over time.

Being proactive can minimize the effects of unexpected events. For example, if a potential partner wants to exit the firm, having a current valuation on hand allows you to act quickly and negotiate confidently. Business disputes and even personal life changes, such as a divorce or a change in your health, can be tackled efficiently and effectively with an updated valuation that protects your personal interests.

For owners considering succession, annual valuations help track progress toward their transition goals. They also provide critical support for estate planning, gifting strategies, and buy/sell agreements. Accurate, current data makes these processes smoother and more defensible.

Banks and investors rely on credible valuation data to assess financial strength. By maintaining an updated valuation report, you demonstrate transparency, accountability, and a commitment to understanding your business, all traits that inspire confidence in financial partners.

Updating an existing valuation can be less expensive than starting from scratch. Most of the foundational work is already done, and the appraiser can update their analysis and report in a more timely and cost-effective fashion.

In summary, obtaining a business valuation shouldn’t be a one-and-done exercise. Just like you review your financial statements each year, updating an appraisal annually ensures you always know where your company stands. It’s an empowering step toward planning, protecting, and growing your business with confidence.

It’s not uncommon for two business valuation professionals to arrive at different conclusions about the same company’s value. When this happens, whether it’s for litigation, shareholder disputes, divorce cases, or buy-sell disagreements, one side may request a review and rebuttal of the opposing appraisal report. This process is critical to determining the strengths and weaknesses of both reports, which will assist the court further or help negotiating parties arrive at an objective understanding of the most reasonable value.

A review and rebuttal assignment will involve a critical analysis of another appraiser’s report to assess its credibility, compliance, and reasonableness. The reviewing expert identifies any technical errors, unsupported assumptions, or departures from recognized valuation standards, such as the Uniform Standards of Professional Appraisal Practice (USPAP) or the National Association of Certified Valuators and Analysts (NACVA) guidelines.

The deliverable will typically be a concise summary report outlining these findings and how potential errors impact the opposing analysis and final conclusion of value.

When two valuations differ, decision-makers such as judges, attorneys, and business owners need clarity on why the numbers are far apart. A well-prepared rebuttal provides that clarity by highlighting unsupported assumptions or unrealistic projections as well as identifying flaws in methodology, or limitations with the assumptions and approaches taken.

It’s important that the review and rebuttal ensure the discussion remains focused on analytical integrity rather than advocacy or bias. The opinions and responses should be a professional critique of the work and not toward the individual who performed it. The goal is to maintain objectivity and demonstrate analytical soundness. A credible rebuttal enhances the reviewing expert’s reputation and strengthens the overall integrity of the valuation process.

A review and rebuttal of an opposing business appraisal report serves as a vital quality control mechanism in contentious valuation matters. By identifying weaknesses, inconsistencies, and deviations from accepted practice, the reviewing appraiser helps clients, attorneys, and courts reach more reliable settlements based on fair and reasonable estimates of value.

Ultimately, a well-executed rebuttal isn’t just about defending the client’s or your own opinions but more about upholding the standards of the profession and ensuring that valuation estimates are based on sound analysis, reliable data, and objective reasoning.

For many small business owners, the value of their company is often based on their own belief or a quick calculation from a cheap or even free, unsupportable source. While this approach may seem easy, it often leads to inaccurate conclusions that can cost an owner money, opportunities, and credibility. A certified business valuation, performed by a qualified appraiser, provides clarity, accuracy, and peace of mind, while taking the guesswork out of the equation.

A small difference can have a significant impact when appraising your business. Over or underestimating value can create concerns with lenders and potential buyers, as well as internal tax and accounting requirements. Certified valuation professionals utilize proven methodologies under the income, market, and asset approaches, which take into account appropriate financial, market, and industry data.

Business owners often face critical decisions regarding the future of their company. Whether it pertains to selling, bringing on investors, securing financing, planning for succession, or resolving disputes, a fair and realistic value assessment should be a top priority. All these potential events require a defensible number, not a guess. A certified valuation provides the credible documentation that stakeholders, banks, courts, and potential buyers trust.

Owners often tend to rely on “rules of thumb” or anecdotal comparisons that do not account for the specifics of their business. This oversimplification can lead to undervaluing strengths or overlooking risks. A certified appraiser considers all factors that may impact value to create a complete, unbiased picture.

While a certified valuation comes with a cost, it often saves or earns business owners much more over time. By knowing the true value of your business, you can negotiate effectively, plan strategically, and avoid costly mistakes that arise from guessing.

In summary, a certified valuation is not just another report, but a tool that empowers small business owners to protect their hard work, maximize opportunities, and move forward with confidence. Guessing the value of your business is risky; knowing it with certainty is powerful.

Take the extra time and effort and reach out to a valuation professional today who can provide additional insight into the importance of obtaining a certified business appraisal.

When it comes to professional valuation practice, two sets of standards often come into play: USPAP (Uniform Standards of Professional Appraisal Practice) and the NACVA (National Association of Certified Valuators and Analysts). While both aim to ensure credibility, consistency, and ethical behavior in valuation work, they are applied in slightly different contexts and with varying emphases. Understanding how they align and where they differ can help appraisers remain compliant and instill greater confidence in their work.

USPAP, established by The Appraisal Foundation, serves as the authoritative framework for appraisals across the United States. It is required by law for real property appraisers and widely adopted in equipment and business valuation contexts. USPAP emphasizes principles such as ethics, scope of work structure, reporting requirements, extraordinary assumptions, and hypothetical conditions, all topics critical to preparing and presenting an independent valuation. 

The NACVA’s Professional Standards were created specifically for financial professionals conducting business valuations, litigation support, and related consulting services. NACVA standards overlap with USPAP in terms of ethics and disclosure, but also emphasize unique aspects of business valuation, such as engagement types, accepted methodologies, independence, objectivity, and work file documentation.

Where USPAP provides universal principles, NACVA offers more tailored requirements for the business valuation profession.

Key Similarities between the two include objectivity and independence, reporting transparency, limiting conditions disclosure, and professional appraiser competence.

Key Differences include a broader discipline range, with USPAP covering virtually any type of accredited valuation, while the NACVA focuses solely on financial and business appraisal. In addition, USPAP compliance is mandated in many cases by law or regulation, while NACVA compliance is required for its members.

Failing to follow USPAP can expose an appraiser to regulatory risk, while ignoring NACVA standards can jeopardize one’s credibility as a certified analyst. If you’re a business appraiser, the most reliable practice is to understand the requirements of each and ensure your reports satisfy both sets of expectations.

USPAP and NACVA standards ultimately share the same goal: to produce reliable, credible, and ethical valuations. While USPAP provides an overarching regulatory framework, NACVA adds layers of specificity tailored to business valuation professionals.

A business appraisal is a powerful tool that provides clarity, credibility, and confidence for business owners, investors, and other stakeholders. There are several common reasons why owners and their advisors require a formal certified valuation. Understanding these purposes can help you anticipate when and why an appraisal might be necessary.

Buy/Sell

Whether you’re an owner looking to sell or a buyer assessing an opportunity, a professional valuation establishes a fair value for the company. This provides a more equitable opportunity for each side and a foundation for negotiations.

Succession & Estate Planning

Business owners will need an appraisal as part of such things as succession planning, gifting shares, or transferring ownership to the next generation. For estate purposes, the IRS requires supportable valuations to establish tax obligations and support asset transfers.

Partnership Buyouts and Disputes

>When a business partner exits—whether voluntarily through retirement, or because of a dispute, an appraisal helps determine a reasonable buyout price. Having a credible third-party valuation reduces conflict and allows the parties to negotiate fairly.

Divorce Settlements

In divorce cases, businesses are often one of the most valuable marital assets. Courts require a certified, independent third-party appraisal to fairly divide assets and avoid contentious disputes over the company’s worth.

Financing and Investment

Banks, private equity firms, and investors often request a business appraisal before providing funding for loan underwriting and sound investment decisions.

Strategic Planning and Growth

An internal valuation assessment will allow business owners to understand better the company’s strengths and weaknesses, including the key drivers of value and potential risk factors, helping owners make more informed decisions for growth.

No matter the purpose, a business appraisal provides a clear picture of value at a specific point in time. Whether you’re planning for the future, navigating a legal process, or considering a sale, having a well-supported valuation can save time, reduce conflict, and protect your financial interests.

Starting a business with a partner often feels like a dream scenario. You share the workload, pool your resources, and bring complementary skills to the table. But over time, even the strongest partnerships can strain, leading to disagreements or, worse, a complete breakdown of the relationship. Understanding the why and how in these scenarios up front can potentially avert them down the road.

Partners may have different visions of success, pertaining to areas such as growth, profitability, and company size, among others. Without alignment, one partner may want aggressive expansion while the other prioritizes stability, leading to tension and resentment.

As the business develops, workload issues can start to put strain on the relationship where one partner believes they are bringing more to the table than another. This can lead to arguments about compensation and recognition.

Financial and investment disputes are among the most common partnership killers. Disagreements about reinvesting profits, handling debt, or personal withdrawals can quickly escalate if clear policies are not in place.

Fundamental differences in values, work styles, or conflict resolution approaches can make the business environment toxic over time.

A change in one partner’s priorities due to family, health, or personal interests can affect their commitment to the business, leaving the other partner feeling abandoned or overburdened.

Trust is everything. Issues such as unethical behavior, misuse of funds, or going behind each other’s backs break trust and are often irreparable in a business relationship. When partners stop having open and honest conversations, small misunderstandings can snowball into major conflicts. Regular, structured communication is essential for resolving problems early.

While not all conflicts can be avoided, many can be minimized through careful planning. Create a comprehensive partnership agreement from day one. Set shared goals and revisit them regularly. Define clear roles and responsibilities so no one feels overburdened. Commit to open communication and scheduled check-ins. Pre-plan for “what if” scenarios such as buyouts, dissolutions, or disputes.

Business partnerships can be incredibly rewarding, but they require as much care and maintenance as any other important relationship. By addressing potential conflict points early, you’ll have a better chance of keeping your partnership and your business on track.