Business Valuation Blog | Understanding Buying / Selling a Company

Why Do You Need a Business Appraisal for Sale or Purchase?

Posted by Business Valuation Specialists LLC on Nov 25, 2019 8:00:00 AM

valuing a business for sale or purchase

Whether you're considering buying or selling a business, it's a big decision, one that you want to get right. One way to ensure that you're getting the deal you're looking for is by getting a business appraisal for sale or purchase of a company. This process confirms the company's estimated value through an unbiased third party while providing solid documentation that leaves you in a position of strength in your negotiations. Here are a few examples of why you should have a business appraisal performed on the company you're considering transferring ownership of.


Why Do You Need a Business Appraisal for Sale or Purchase?

Let's approach this situation from two different viewpoints: that of the buyer and of the seller. The buyer wants to maximize their profits from the sale of the business, but may not be exactly certain of the areas in which their business is strong or weak. They may have some idea based on guesses, but nothing that has been verified by an expert outside of their own business. Where should they improve their business? Where should they invest some funds to help improve profitability when they sell the company? Without outside insights, this process can be arduous and may not end up in the best interests of the seller.

Now let's look at the buyer. They want to purchase a company, but at the same time want to make sure that they're making a good investment. They want to make sure that they won't suddenly find themselves in financial trouble because income, assets or liabilities were not properly represented while they were researching the company. Do they know whether the high-dollar sale last year was normal or a fluke? Can they depend on that kind of performance in the future, or is the market simply in an upswing that isn't expected to last? Without this information, it's hard to determine whether this business is a solid purchase. 

When a business appraisal is performed by an accredited third party, the results aren't being skewed by someone with an interest in the final result. Whichever party requests the valuation receives the same information that would have been provided to the other party. This makes it easier for both parties to sit down at the negotiating table and come to an equitable agreement based on the fair market value of the company. Instead of having to waste time arguing over small details about whether the sales transactions in the books are an accurate description of the business' usual state of affairs, you can spend your time in the real details of the deal. Rather than worrying if the equipment has more equity that is represented because it's been fully depreciated, you can negotiate how long the current owner will remain to train the new owner, or whether personal introductions to important current contacts can be arranged.

By having a business appraisal for sale or purchase of a company, you can ensure that you're making an intelligent decision with the change in ownership. However, it's important to remember that the best way to ensure that you're getting an accurate value of the company is by hiring an accredited independent business valuation specialist, who has no possible benefit from the outcome of the company's sale. 

Topics: Business Sale or Purchase Appraisal