Ask the Expert: Business Valuator
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Q: How much does a business
valuation cost? Is it worth spending a lot of money on this?
A: Business valuation fees range considerably and depend on many factors,
not the least of which is what the appraiser is asked to value, the purpose of
the appraisal, and the availability of requisite financial and tax information.
Another important determinant is the amount of work required by the appraiser to
comply with professional standards. Members of the American Society of
Appraisers, including this author, are required to comply with the relevant
parts of the Uniform Standards of Professional Appraisal Practice (USPAP).
According to Steven F. Schroeder, USPAP compliance “has increased the amount of
work appraisers must do, even for simple appraisal assignments” (“How Much
Should a Business Appraisal Cost?” Inc. Magazine, July 2003).
While most people look at the explicit cost of an appraisal, few look at the
cost of not getting a professional business valuation. Consider the following
examples. Both spouses own the business and want to sell it and divide the
proceeds. Without an appraisal, they may each fetch a lower amount than what
they had hoped to realize. Alternatively, a competitor may pay more than fair
market value to buy them out, giving rise to cash flow and/or tax issues, not
otherwise present. Another possibility is that one spouse owns a business and
wants to keep it. Without the valuation, the non-owning spouse may end up with a
considerably smaller financial settlement. Moreover, appraisals can provide
insight about ways to enhance the company’s value. This is important for the
spousal owner who wants to keep running the business, improve profitability, and
sell at a later time.
Disclaimer: Nothing in this article
is intended to serve as investment or legal advice or to persuade, induce, or
encourage the reader to take any action related indirectly or directly to information
presented in this column. The reader is urged to seek his or her own investment
and legal advice from qualified professionals. The authors (and their respective
companies) disclaim any and all liability for any suits, actions, or proceedings
arising out of or related to the text, substance, and/or subject matter of this