FAQs by Business Owners
- Q. WHAT IS A BUSINESS APPRAISAL?
- A. An opinion of worth based on informed judgment, reasonableness,
and common sense.
- Q. WHY WOULD I NEED AN APPRAISAL?
- A. Business owners rarely know what their businesses are worth. If you’re thinking of selling (or buying), trying to make business decisions relative to expanding, downsizing, borrowing, bringing in or taking out partners or shareholders, gifting any part of your business, estate or succession planning, or if you are involved in, or about to become involved in, litigation you will need to know what your business is worth.
- Q. WHEN SHOULD I HAVE IT APPRAISED?
- A. When the need arises, but certainly not at the last minute. Appraisals take time.
- Q. HOW LONG DOES IT TAKE?
- A. It depends on the condition of your financial records, the research that must be conducted, the data that must be gathered, the standard of value being sought, how the appraisal is going to be used (decision making, court, IRS, etc.) and the type of report that must be issued.
- Q. WHAT’S A STANDARD OF VALUE?
- A. It’s a “mold” that the appraisal must fit into. The most common, fair market value, refers to what a “hypothetical seller would accept and what a hypothetical buyer would pay, all parties being reasonably informed and no one under any compulsion to act”. Investment value is the standard when valuing for one specific buyer. Fair value is the standard used when valuing minority shares when the value is in dispute. There are also other standards.
- Q. WHO DETERMINES THE STANDARD?
- A. The client, attorney, or the court, but never the appraiser.
- Q. WHAT METHOD WOULD YOU USE TO APPRAISE MY TYPE OF BUSINESS?
- A. The method(s) used have nothing to do with the type of business being valued. It has to do with the specific business’ performance, available market data, and many other factors.
For example: Two identical types of businesses, however one has excess earnings and the other has none. The excess earnings method may be used to value one, but not the other, even though they are of the same type.
- Q. HAVE YOU EVER APPRAISED A BUSINESS LIKE MINE?
- A. It is not necessary for the appraiser to have appraised a business like yours. Professional appraiser are trained in searching for the information they need so they can appraise any type of business.
- Q. WHAT DOES THE APPRAISER LOOK AT PRIMARILY?
- A. Past performance and the likelihood of continuance.
- Q. WHAT ABOUT MY GOODWILL?
- A. Goodwill must be transferable and marketable in order for it to have value. If Rembrandt decides to sell his studio and stop producing paintings, there is no transferable goodwill. If however, he contracts to continue painting for the studio, there could be transferable goodwill.
- Q. WHAT ABOUT MY TRADE NAME?
- A. Buyers are not normally inclined to pay for the trade name of mid-size to smaller businesses. If you are Coca Cola or General Motors however, it could be a different matter.
- Q. I NEED A HIGH (LOW) APPRAISAL! CAN YOU DO IT?
- A. Appraisers are required to be independent, non- advocates, and must not perform “made as instructed appraisals”.
- Q. ARE BUSINESS APPRAISERS LICENSED?
- A. No! There are national organizations that certify appraisers.
- Q. WHY SHOULDN’T MY ACCOUNTANT APPRAISE MY BUSINESS?
- A. It is unethical for the person who prepared a company’s financial reports to also appraise the business and render an opinion based on those reports. That is what got Enron and Arthur Anderson in trouble.
- Q. HOW MUCH DOES AN APPRAISAL COST?
- A. There is no answer. Some appraisers charge by the hour and others by the assignment. But in either case, the appraiser will estimate the number of hours the assignment will require, and the type of report required, and will base the fee accordingly.
- Q. WHAT DO YOU MEAN BY TYPE OF REPORT?
- A. The report can be oral or written. Written reports come in
different forms with different amounts of detail. The more detailed the report, the greater the cost. Reports for tax purposes are usually required to be in greater detail than reports for other purposes.
- Q. WHERE DOES THE ACCOUNTANT FIT IN?
- A. Appraisers rely on accountants to provide them with reliable, accurate, accrual-based financial information.
- Q. WHAT’S A FORENSIC ACCOUNTANT?
- A. An accountant who is trained like a detective; to find where the “bodies are buried” and to create new financial reports based on discovered information.
Jerry F. Golanty, MCBA, BVAL
Master Certified Business Appraiser
Business Valuator Accredited in Litigation
BizVal - Reno
1575 Delucchi Lane
Reno, NV 89502
Phone (775) 332-4881
Fax (775) 827-0137