There are many types of Valuations for Business Owners, so how do you know which one is right for you? The Cost of a Business Valuation can be a determining factor when finding out. There are basic questions you can ask yourself to help determine the right product to evaluate your business.
1. What do you need a Valuation for?
From planning to protecting, your numbers tell just a part of the story. Tangible and Intangible items will be valued when someone wants to buy a business. So, it’s not just the numbers that tell the story it’s also the people, development, and branding you have created over the years. Assets, Liabilities, and Income are the common areas that we will review in a Fair Market Valuation.
2. How often should I do a Valuation?
Business Valuations should be reassessed on an annual basis to get the best view of your growth and exit strategies, no matter when you decide to exit. Quarterly updates are vital for successful growth planning. A Fair Market Value snapshot helps you in the planning process while you are still working in and on your business. Fair Market Valuations (FMV) are the most cost-effective for the small business owner and best for planning purposes.
If you have a more complex business structure such as a holding company with multiple entities and/or locations, you may need a Certified Summary Valuation. This type of business appraisal report will provide a more in-depth summary report that will usually be in the $5000-$6000 range.
In situations where the IRS will get involved or other legal matters arise, a Certified Detailed Valuation is required for litigation and tax purposes. These in-depth reports are highly defensible and offer peace of mind in often tense and uncertain situations. The Cost of a complex Business Valuation can vary depending on the business needs and can start at $7000 for one entity.
3. What is the difference between a Business Appraisal and a Business Valuation?
A valuation aims to determine the overall value of the business, while a Business Appraisal seeks to determine the value of specific assets within the business and also provides an estimate of the value of specific assets or departments, a Business Valuation provides an estimate of the overall value of a business.
While both business appraisal and business valuation are instrumental in understanding a company’s worth, they differ in their definition, methods, and areas of focus.
Definition: An appraisal tends to focus more on tangible assets and market value, often used for specific purposes such as insurance or liquidation situations. On the other hand, a business valuation offers a more comprehensive view, encompassing both tangible and intangible assets, and future earning potential.
Methods: The appraisal uses a more straightforward and direct approach, basing the value on recent sales of similar assets or businesses. In contrast, valuation follows a more complex process, considering multiple factors such as the company’s current financial status, projected earnings, market trends, and competitive landscape.
Areas of Focus: While appraisals are often utilized for asset disposal, insurance claims, or collateral, valuations are principally used in strategic planning, mergers and acquisitions, investment discussions, and succession planning.
4. What are the key areas I need to know about when looking into a Business Valuation?
Negotiation Leverage: A Business Valuation offers the advantage of providing concrete, quantifiable data about a company’s worth, which can be used as a powerful tool during negotiations for mergers, acquisitions, or investment discussions.
Strategic Planning: By understanding the value of a business, decision-makers can set more accurate and realistic goals for growth, investment, and resource allocation.
Cost and Time: FMV Business Valuation takes about 7-10 business days to complete allowing for a cost-effective and timely report for your planning needs. Even more complex Valuations can be done in 30-60 days.
Attractive to Potential Investors: A Business Valuation can make a company more appealing to potential investors, as it indicates that the business owners have a clear understanding of their company’s worth and are transparent about their financial status.
Fluctuating Values: A company’s value can fluctuate due to various factors such as market conditions, making the valuation less accurate over time. At Fortress Business Advisory, we offer quarterly updates to your annual Business Valuation report to keep those values in check.
Dependent on Expertise: Our team of Business Valuation experts at Fortress Business Advisory ensures you receive an accurate report you can count on.