A business appraisal, or valuation, is a crucial component in the sale of a company. In order to reach a fair price, both sides need to know how much the company is worth. An independent, accurate valuation also lends credibility to the asking price and can be useful to prevent prolonged negotiations.
After the initial consultation, you can expect visits from the appraiser and lists of data and records you will need to compile for financial and market analyses. You should also prepare managers and key staff for interviews that will provide insights into your operations, strategies, and market environments.
For a quick assessment, use Axia’s business valuation calculator tool so that you can get a basic idea of how much your business might be worth.
What Factors Influence the Cost of an Appraisal?
There are many things that might affect how much a business appraisal costs, such as outside specialists who require additional fees. You may be billed a flat fee or by the hour, but you can expect the total price to range from about $5,000 all the way up to $20,000 or more.
Company Size and Complexity
There is no one-size-fits-all pricing method for business evaluation services. The size and complexity of your firm can influence the depth of analysis required for an appraisal, including time and resources spent.
For example, a small “mom & pop” plumbing contractor with only a few employees and a truck full of tools takes less effort to value; therefore, you can expect a cost that is relatively low on the spectrum.
On the other hand, a large HVAC corporation could consist of multiple divisions, thousands of employees, extensive inventories, and international subsidiaries. These factors could drive up the valuation cost to more than $20,000.
Appraisal Purpose
Different appraisal purposes require different evaluation procedures. The process applied to your unique business objectives will affect the total cost.
Selling Your Business
A seller’s appraisal focuses on increasing the perceived value of their company to achieve the highest possible sale price. They want to highlight profitability and unique competitive advantages and downplay risks in favor of focusing on mitigating those potential issues.
Buyer’s Perspective
Buyers focus more on the true value of a company so that they can lower the asking price. They are looking for potential risks, liabilities, and inflated value. A buyer’s approach is much more critical and focused on earning sustainability and asset conditions.
Uncertified Business Valuation
Uncertified valuations are less formal processes primarily used for internal decision-making or preliminary sale assessments. They can be conducted internally or by external consultants who may not have appraiser’s credentials. You can also easily obtain an uncertified appraisal yourself with a business valuation calculator.
Certified Business Appraisal
If you need business appraisal services for legal proceedings, tax issues, or bank financing, you must hire a professional or firm that has been certified by a recognized appraisal organization. These professionals conduct appraisals using standardized methodologies and operate under the ethics and reporting standards of the certifying organization.
Appraisal Method
There are three different valuation methods that appraisers use to determine what your company is worth.
Asset-Based Approach
The asset-based method focuses on your company’s net asset value, calculated by subtracting your liabilities from your total assets. This approach is ideal if your business owns significant tangible assets such as real estate, machinery, or equipment. It is also the preferred method for companies that are winding down and liquifying assets.
Income-Based Approach
This method values your business based on its ability to generate cash flow, earnings, and profits. It is often best for companies with consistent, predictable earnings and for those where intangible assets like brand reputation or proprietary technology play an important role in generating profits.
Market-Based Approach
The market-based approach reflects what investors are currently willing to pay for similar businesses that have recently been sold or are publicly traded. It is particularly useful for evaluating small- to medium-sized enterprises that may not have complex financial structures.
Each of these methods yields different results, and depending on the complexity of your situation, you may benefit from the use of more than one approach. For example, a small roofing business with stable, predictable income and long-term contracts that needs an investment to expand would benefit most from a single income-based approach that focuses on the company’s ability to generate future cash flow.
However, a merger involving a large construction company that operates across multiple sectors, holds a substantial portfolio of office buildings, and runs an equipment leasing division would use all three methods to provide the most well-rounded picture of the business’s value. Since this type of appraisal is more complex, you can expect the price to be higher.
Appraiser’s Expertise
As you might expect, an appraiser with a history of practice and expertise will usually charge more than one entering the profession. Still, that expertise translates into more accurate valuations, an unbiased perspective, experience with complex evaluations, and knowledge of regulatory and compliance aspects. These advisory firms can offer strategic insights into how your business can increase its value.
Furthermore, they can facilitate sale, merger, and acquisition transactions by providing credible appraisal reports that can minimize disputes over your business’s value. You should also seek out appraisers with the following credentials:
- Accredited Senior Appraiser (APA)
- Certified Valuation Analyst (CVA)
- Certified Business Appraiser (CBA)
- Accredited in Business Valuation (ABV)
These can also lead to a higher cost, but they are necessary if you need an appraisal recognized and accepted by the IRS or court.
What Does an Appraiser Need To Perform a Valuation?
An M&A advisory firm will first need detailed information about your business, which includes:
- Financial Documents: This includes financial statements, profit and loss statements, balance sheets, and cash flow statements for at least the previous five years. You will also need state and federal tax returns for the same period and any documentation reflecting future revenue, expenses, and cash flows.
- Legal Documents: You will need to compile your articles of incorporation, partnership agreements, and anything else that shows your business structure. Gather your customer or supplier contracts and leases for real estate or equipment.
- Operational Information: An appraiser will want to see a business plan that includes marketing strategies and details on current stock with inventory management practices. Also, prepare personnel details, such as number of employees, management structure, and key staff.
- Assets Information: Be ready to show the details and valuations of your current assets, including property, buildings, and equipment. You will also need to provide information on intangible assets, such as trademarks, patents, and brand equity.
Axia Advisors will use all of this documentation when performing business evaluation services. Additionally, we will take into account a market analysis, data on your competitors, and recent industry reports that provide insights into the current economic and regulatory environments. We will perform valuations using the three appraisal methods to gain the best overall picture of your business’s worth.
A quick, uncertified valuation of a small, simple business can take less than a week, while complex appraisals could last six weeks or more. However, the average time frame is usually a couple of weeks.
Take Advantage of Axia’s Expertise
As a business owner, you already understand the importance of experience in your field. The same goes for business appraisal services, and we have the expertise necessary to perform accurate complex evaluations, comply with standards and regulations, and provide strategic insights to affect the price. When you are ready to start the process of selling your roofing company, contact Axia Advisors for a personalized consultation or for more information.
