Business Appraisal FL|GA has designed this decision tree to help you get the most value for your time and investment and to understand business appraisal pricing.
How Much Should I Spend on a Business Appraisal?
- Question #1: Is it for the Courts or the IRS?
- Question #2: Is it for a bank to make a loan?
- Question #3: Are you selling your business to a family member?
- Question #4: Are you selling the business to your employees?
- Question #5: I am buying a business
- Question #6: I want to know the ballpark value of my company every few years
- Question #7: I received an unsolicited offer for my business.
- Question #8: I have a great idea, and I want to use a hypothetical valuation to approach investors.
What should I Pay for a Business Valuation?
Pricing to value a company varies from $2,900 to $10,000 for most business owners. How do you decide the appropriate valuation type and cost for you? Business Appraisal FL|GA has designed this decision tree to help you get the most value for your time and investment and to understand business appraisal pricing and the fair market value of your company.
Please read what is a business valuation.
Question #1: Is it for the Courts or the IRS?
Do you need a business valuation for IRS purposes? The IRS and courts have a certain minimum standard when it comes to valuing a company. These certified valuation reports are typically 60-100 pages long, valuing your business using at least 4-7 different valuation methods. And the certified valuation expert signing the valuation would be comfortable testifying in court, presenting their finished product and all work notes created during the valuation engagement.
You can also read IRS business valuation guidelines.
If the valuation is for litigation or a divorce, you need a certified business valuation report to the court’s standards. You will also need a personal goodwill allocation if your state allows it under your state’s marital asset laws.
Valuation Cost $5,300-$13,000 plus court time (if needed)
Question #2: Is it for a bank to make a loan?
SBA lenders have minimum standards they ask for from approved valuation firms. These reports can be from 40-60 pages long and signed by a CVA or similarly credentialed valuation professional. The valuation firm has some liability if the loan goes bad and their valuation services are questioned. Tax returns and solid financial statements are critical components.
We have an article on business valuation reality check which shows that a loan will cash flow based on the final business appraisal numbers.
Valuation Cost $3,000-$6,700
Question #3: Are you selling your business to a family member?
I buy a new Lexus for $100,000 and sell it to you for $1. I am a nice guy. You buy a Lexus for $100,000 and sell it to one of your children for $1. The IRS wants to be paid on the $99,999 gift tax.
If the transaction is not arms-length, then you will need a certified valuation and a goodwill allocation just in case the IRS investigates your family transaction after the fact. This also holds true if you are transferring your shares into a trust for the benefit of your family.
You can also read should you get an appraisal of your family business.
Valuation Cost $5,000-$13,000
Question #4: Are you selling the business to your employees?
If you are a large enough business, you can use an ESOP as a vehicle to sell to your employees. If you are less than $20,000,000 in sales, you can have your company valued, arrange pre-financing for your management team, and consummate the sale. Our sister company Bankers Advocate can help you with both a family transfer/sale or a sale to your key employees.
Valuation Cost $5,300-$13,000
Question #5: I am buying a business
The size of the target company and whether you are using SBA or bank financing will decide on the complexity of the business valuation report you need. Larger businesses with complicated financing and deal structure need a more robust valuation done with fraud and other due diligence. Here is a Due Diligence checklist our sister company, Bankers Factoring, uses.
Valuation Cost $3,500-$13,000
Question #6: I want to know the ballpark value of my company every few years
You are a small business, or you do not plan to exit business ownership for a few years, and you want to know the estimated market value of your business for retirement planning or a future sale.
You also may want to issue key employees’ phantom stock or have a buy-sell agreement that has not been triggered, but you still need to know the company’s worth and the potential to sell your business.
Valuation Cost $1,900-$4,100
Question #7: I received an unsolicited offer for my business.
If it is a serious buyer offer, you can have a medium-priced certified valuation done pre-business sale. However, be careful. You are only talking to one buyer, so they are driving the transaction. Have them sign an NDA and show you proof they have the financing in place to close on buying your company. After they take those two steps, then you can invest in a middle-price range certified valuation, which will contain a market approach, similar business comparisons, and cash flow analysis.
Valuation Cost: $3,700-$6,700
Question #8: I have a great idea, and I want to use a hypothetical valuation to approach investors.
A hypothetical valuation is done so an angel investor or family member can see how you forecast your business to grow using their working capital investment. The investment can be in equity, financing, or a combination of both. We have an in-depth article on valuing pre-revenue start-ups.
Your forecasted growth and our research on similar companies with similar growth projections will drive the valuation process’s results. We will also look at your intellectual property.
Valuation Cost: $5,200-$8,900 (Hypothetical Valuation)
There are many other reasons to have your business valued, but this covers 99% of what we have seen in the last 20 years. So, whether you need a business appraisal for IRS purposes, for selling your company, or for other reasons, to gather your financial statements and other valuation data and Business Appraisal FL|GA will be happy to have a zero-commitment discussion about your situation and your appraisal cost.
And the free valuations from a business broker? You get what you pay for, and they are good for cocktail conversations at best.
We are each a certified valuation analyst (CVA), and our work will stand up in any venue. We hope this article helps you understand better how much does a business valuation cost depending on your specific needs, what your valuation fee will be, and the valuation process.
As a business owner, do you need help with your business valuation steps or what makes up business valuations? Please call or contact BA FL|GA.