Business Valuations
Obtaining a professional business valuation is an important requirement for many businesses. A business valuation may be required for many reasons and they include:
- Sell a business
- Obtain finance
- Shareholder Agreement/ Shareholder Disputes
- Divorce
- Employee Stock Option Programs (ESOPs)
- Estate Planning and Gift Taxes
- Insurance Claims
- Litigation
- Mergers/ Partnership Buyout
- “C” Corp. to “S” Corp. conversion
- Allocation of Purchase Price
- Valuation Reports
But what is a valuation?
A business valuation or appraisal is the independent and unbiased process of determining a supportable opinion of the value of a business, business ownership interest, security or intangible asset at a specified date.
Types of valuations
If you need a valuation then it is critical to determine the reason for the valuation as this establishes the type of valuation report you need and the cost. In broad terms, there are three types of valuations:
- Brokers Opinion of Value (BOV).
A Brokers Opinion of Value is normally used by the owner of a business considering its sale. This report brings together a Most Probable Selling Price (MPSP) for the business by using three valuation methods—Market Data, Income and Cost or Asset Approach. - Business Valuation or Short Report.
A Valuation or Short Report is a formal summary report that is used primarily for non-litigation situations. This restricted-use abbreviated report is typically all that is needed to determine the selling price of a business or assist in establishing a buy-sell agreement between partners/shareholders. - Business Appraisal or Full Report.
A Business Appraisal Report or Full Report is a formal comprehensive report that is suitable for litigation support and review by third parties such as the IRS or a court of law. The report explains in a step-by-step manner what was done and how the value was derived.
All valuations are performed by qualified, professional appraisers experienced in all aspects of business valuation and business transfers. The Business Valuation and the Business Appraisal are performed in compliance with the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation (USPAP) as well as the Business Appraisal Standards of the Institute of Business Appraisers. Compliance with industry standards ensures that proven peer-reviewed valuation methods are used to develop defendable opinions of value.
