Determining Value – Choosing a Business Appraiser

Don’t Leave Valuation to Chance

If you were asked what the value of your business is, would you know? How could you find out? Assuming you decide to hire an appraiser, how do you decide who to hire? And how much should you expect to pay?

To find out how much a business is worth, you may need to hire a business appraiser. An appraiser is a professional who provides a disinterested, independent “opinion of value” of a business. Appraisers can provide business valuations in the event of a sale or for estate, gift-planning, tax, or litigation purposes. They can also provide valuations in the event of bankruptcy or restructuring.

Valuation is the determination of the worth of an entity or item. According to Erin Hollis, “A valuation can be as loose as a guess, to a ‘back of the envelope’ calculation, to a formal opinion rendered by a third-party professional business valuation expert.” The right business valuation can make or break a sale or other transaction.

Hiring the Right Business Appraiser

You must determine what type of valuation you need and what measure of valuation you will use. There are various kinds of appraisal and valuation experts. When selling equipment, you will want to look for an equipment appraiser. When selling real estate, find a real estate appraiser. But if you need to sell your business as a going concern, you will want a business appraiser. This person, also called a business valuation expert, will determine the proper value.

Accreditation

Many business appraisers or valuation experts are accredited by a governing body and have received a professional designation. This means the appraiser has received training or has a certain level of experience in their field, not that they’re not qualified to perform the appraisal engagement. It may, however, be a factor worth including as you consider who to hire. This is especially important in high-stakes situations such as litigation or bankruptcy.

Business appraisers with a professional designation must adhere to a code of ethics. This code requires “independence.” The appraiser’s relationship with their client is not that of an employee or agent. A professional appraiser is retained as an “independent” expert and is to be an advocate only of their professional opinion of value. It is important to understand that this type of client relationship differs from that with the business owner’s attorney, accountant, or business broker.

The most widely recognized accrediting organizations, along with the initials representing the credential granted to a professional who has earned that organization’s accreditation, are:

Credentialing Requirements For Each Organization

To further evaluate the qualifications of the individual’s credentials, you should understand the credentialing requirements of each organization:

Accredited Senior Appraiser (ASA)

Awarded by the American Society of Appraisers (“ASA”). The ASA is a multi-disciplinary organization including:

• Members in real estate
• Business valuation
• Fine arts
• Machinery & equipment
• Gemology

It also requires passing an ethics exam and a course and examination on the Uniform Standards of Professional Appraisal Practice.

Accredited in Business Valuation (ABV)

Awarded by the American Institute of Certified Public Accountants (“AICPA”). The AICPA is the national professional association for Certified Public Accountants in the United States.

The additional designation of ABV requires that members hold a valid CPA certificate and pass a comprehensive business valuation examination.

Certified Business Appraiser (CBA)

This designation is granted by the Institute of Business Appraisers (“IBA”). The CBA designation requires members to hold a 4-year college degree (or equivalent) and successfully complete at least 24 hours of coursework offered by the IBA. A CBA written examination is also required.

Certified Valuation Analyst (CVA)

This designation is awarded by the National Association of Certified Valuation Analysts (“NACVA”). The CVA designation requires successfully completing a Business Valuation and Certification course, a written exam, and 2 years experience as a CPA.

Pricing

Of course, selecting a business appraiser will also involve comparative fee considerations. Most accredited appraisers’ fees average from $100-$150 per hour. A written, formal appraisal report typically costs at least $2,500-$5,000.

Performing the assignment can take 20-30 hours, resulting in a report totaling anywhere from 15–50 pages or more. Depending on the purpose, scope, and complexity of the assignment, the cost can exceed $10,000. If the purpose is to support litigation (such as bankruptcy litigation), costs can be significantly higher.

The End Result Should Justify Cost

Ultimately, you will want to choose a credentialed appraiser best suited to your particular circumstances. The appraiser should offer a cost-effective and affordable fee. The individual chosen should be able to clearly communicate their appraisal results, both orally and in a written report. This should include the supporting approaches and methods for the final opinion. Investing money in a comprehensive, professional appraisal should result in measurable economic benefits to the client. Regardless of the purpose of the appraisal, that will substantially justify the fee.

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[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can watch at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. What’s it Worth? Valuing a Business for Sale
2. Valuing Your Brand and Other “Soft” Assets
3. Negotiating an M&A Deal

This is an updated version of an article originally published on October 23, 2019]

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