If you are considering selling or buying a business in the near future, you will need a business appraisal. Divorce, tax planning, partnership disputes, and any number of other work-related reasons may give you cause to gauge the value of your business. But how do you decide whom to hire? Here are some tips to point you in the right direction:
Hire the Right Type of Appraiser
Business, real estate and equipment appraisers each fall into a major category. Within these categories, there are sub-disciplines and specialists. But nearly all businesses have equipment and many also have real estate—so it can be difficult to determine what type of appraiser you need. And sometimes, you may need more than one type of appraiser. Start by assessing your appraisal priorities. Are they predominantly equipment, real estate, or are you in need of determining your business value above and beyond the equipment and real estate value?
Look for a Professional Designation
Business appraisers have widely different backgrounds and different capabilities resulting from their unique experience and specialized educational background. Most business appraisers have a professional designation after their name that indicates the designations they have earned. The ones you are most likely to see that require serious study and actual appraisal experience are issued from reputable and recognized trade associations including:
|Initials||Which Means||Earned From|
|CBA||Certified Business Appraiser||Institute of Business Appraisers|
|BVAL||Business Valuator Accredited in Litigation||Institute of Business Appraisers|
|ABAR||Accredited in Business Appraiser Review||Review Institute of Business Appraisers|
|CVA||Certified Valuation Analyst||National Association of Certified Valuation Analysts|
|AVA||Accredited Valuation Analyst||National Association of Certified Valuation Analysts|
|CFFA||Certified Forensic Financial Analyst||National Association of Certified Valuation Analysts|
|AM||Accredited Member||American Society of Appraisers|
|ASA||Accredited Senior Member||American Society of Appraisers|
|ABV||Accredited in Business Valuation||American Society of Certified Public Accountants|
|CFF||Certified in Financial Forensics||American Society of Certified Public Accountants|
|CFA||Chartered Financial Analyst||CFA Institute|
|CBV||Chartered Business Valuator||Canadian Institute of Chartered Business Valuators|
Lack of a designation does not indicate incompetence. If a potential appraiser lacks one of these designations, most likely he or she has either just started working in the field or is, perhaps, not active on a full-time basis. An experienced business broker can also help you set an asking price without being a business appraiser.
Understand the Costs
Appraisal work can vary greatly, so get estimates for your specific project. Ask the appraiser for a cost estimate upfront and set the minimum level of report that you need.
An oral appraisal is much more cost effective than a written report. You still get the appraiser's professional conclusion, and many will give you a credit against the cost should you need a written report later on. Most accredited business appraisers charge $50 to $500 per hour and will need to spend at least two to four hours to complete the work required for an oral appraisal. They may also take an hour or two to explain the appraisal to the client.
A written business appraisal costs between $3,000 and $35,000 in most parts of the U.S., though costs can vary dependent upon circumstance. An appraiser typically takes 20-50 hours to complete the work.
If the reason for the appraisal is litigation, costs can skyrocket. Appraisers usually charge a premium hourly rate for litigation preparation and testimony. The public record in the U.S. court system is researchable, and appraisers' written opinions and testimony on the record must be precise and accurate. This type of preparation simply takes more time and costs the client more money.
Insist Upon Independence
Every business appraiser with a professional designation subscribes to a code of ethics, which requires independence. The appraiser must not become the employee, agent or advocate of the client. A professional appraiser is hired only as an independent expert and is to be an advocate only of his/her own professional opinion.
Before you hire a business appraiser, you will be asked to read and sign an appraisal agreement or engagement letter. This agreement will clearly describe the independent nature of the appraiser's opinion, and any report you receive will also clearly state the independence nature of the appraiser’s opinion.
Next Step: Get your Business Valuation Report
Compare your business to others in your market to set the right asking price.