Get Your Business Appraised Before Sales Negotiations |  Opinion

Get Your Business Appraised Before Sales Negotiations | Opinion

Business owners often go the route of selling their business ill-equipped. The owner may have built a thriving business and is rightfully patting himself on the back for his accomplishments, but what has he really built? More importantly, what is its exact value to a potential buyer? In other words, what price should the buyer be willing to pay to acquire the business? Determining the exact value is difficult and complicated.

When business owners get even the slightest indication that they are interested in exploring sales options, they should engage an appraisal expert to provide a thorough, unbiased determination of value. Here are some key points to make this transaction go as smoothly as possible.


Who is a valuation expert?

Typically, this would be a certified public accountant with special training in business valuations, such as the Accredited Business Valuation (ABV) designation. For ease of reference, let’s call these professionals ABV CPAs. These professionals are often engaged to provide a comprehensive appraisal report. But just as important, they are often called upon to defend their valuations, for example when a client is audited by tax authorities or acts as an expert witness in legal proceedings that depend on business valuations.

Timing is critical.

Assuming the business owner can quickly provide all the supporting information required for the ABV CPA review, expect the review process to take at least one month from the time the assignment is made. Therefore, it is important to start the process at the first sign of interest in selling.

Can your own CPA provide an appraisal?

Can be. If you have a long-term relationship with a CPA, don’t hesitate to ask about his or her ability to rate as an ABV CPA. However, often an existing CPA feels comfortable handing this work over to an ABV CPA due to both the additional expertise and the limited scope of the ABV CPA relationship – meaning that the current CPA is less likely to lose your long-held business. Business.

What does early involvement of ABV CPA provide?

A business valuation not only provides the seller with a more detailed understanding of the value of the business for sale negotiations, but can also inform the owner of important business changes the owner can make to increase the value of the business prior to the sale. This allows the owner to start trimming the hairs to demonstrate a more accurate revenue stream from operations. Perhaps the owner or family working in the business will adjust their wages to reflect reasonable wages. Perhaps company expenses, which are often liberally deductible in small businesses and affect the bottom line of the company – should start with the exception of the owner – call it a “grey area”. Perhaps this helps identify and adjust budget items to more closely match industry cost expectations. The bottom line is that it can provide the owner with the tools to understand how to drive business valuation to a higher level over time.

The valuation of the business will not necessarily correspond to the final sale price of the business.

This is usually the case when forecasts meet market realities. Nevertheless, it provides the seller with a more accurate and honest assessment of the value of the business. The seller should also understand that a savvy buyer will often go through a process similar to their ABV CPA to determine the offer price. By starting the process early, owners put themselves in the best possible position to begin negotiations with any potential buyer, armed with a valuation methodology as well as a business-specific valuation understanding in their back pocket.

Beau Ruff is a licensed attorney and certified financial planner and president and director of planning at Cornerstone Wealth Strategies.

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