Valuation Reports: Which One is Right for Your Business

As you gear up to sell your business, you’ve likely been asked to produce a valuation report. It’s important to note that you can’t use a one-size-fits-all approach when determining the value of your organization — there are three distinct types of valuations and each one serves a specific purpose.

Whether you’re gearing up for a major merger, planning your exit, or simply curious about your business’s worth, knowing these valuation types can make a significant difference.

Valuation Type 1: Certified Appraisal

The best valuation report you can receive is a certified appraisal — an in-depth, independent evaluation conducted by a certified appraiser. This type of valuation is certainly the most intense. It’s typically reserved for transactions such as mergers and acquisitions, detailed estate planning, and other scenarios where legal standards demand as close to perfection as you can get.

In other words, certified appraisals leave no stone unturned. They involve a meticulous examination of every aspect of your business, ensuring the valuation can withstand the scrutiny of the most complex transactions. This level of precision comes at a price — certified appraisals can be both time-consuming and costly, especially when expert witnesses are needed, such as disputed valuations during legal processes.

Valuation Type 2: Independent Valuation

Independent valuation reports are also conducted by experienced appraisers, albeit not “certified” ones. These types of valuations serve a crucial role in business and exit planning and offer a detailed snapshot of your business’ worth within the current market landscape. They’re particularly helpful for organizations that are gearing up for the market, and consider factors like comps, benchmarks, trends, and in-depth financial analysis.

One advantage of independent valuation is that they are the most up-to-date valuation you can get. When entering the listing process, having a recent appraisal ensures that those benchmarks and comparisons are as fresh as possible. An independent valuation, like a certified appraisal, is also usually bankable for SBA loans.

Something else to note about this type of report: your business can benefit from regularly updated independent valuations, even when you’re not actively looking to sell. Use it as a strategic planning tool that will help you identify areas for improvement and other ways forward.

Valuation Type 3: Broker’s Opinion of Value

Finally, sometimes all you need are some quick insights and ballpark figures to help you make informed decisions. This is where a broker’s opinion of value comes in. While not as detailed as certified or independent valuations, it provides a quick and cost-effective starting point for businesses to determine where they’re at.

A broker’s opinion of value offers a broad range of information based on comps and industry averages. It’s a low-cost tool that can help align expectations and initiate conversations about your business’s value. It may not provide the precise figures found in other valuations, but it can set the stage for further exploration and eventual refinement.

As a token of our appreciation in Q1 2024, we are offering a free broker’s opinion of value. This is not just a gesture but an opportunity for business owners to gain a quick overview and range of their business’s value. To take advantage of this offer, simply send us an email at . One of our brokers will guide you through the process, ensuring you provide the necessary information for a well-informed broker’s opinion of value.

Key Takeaways

• Tailor your valuation approach to your business’s unique needs: The type of valuation your business needs depends on its current stage, goals, budget, etc. Whether aiming for an in-depth certified appraisal or seeking a quick, cost-effective broker’s opinion of value, understanding your business’s needs is essential.

• Regular valuation reports can become strategic tools: Regularly updated valuations help you see where your business can improve, compare it to industry standards, and plan for the future to make your business more valuable. Think of it as a tool for your long-term planning.

• Align expectations early to avoid misunderstandings: Remember to use the broker’s opinion of value as a starting point for aligning expectations. This tool provides a broad range rather than precise figures. Initiating conversations based on this ballpark figure helps avoid misunderstandings later on, especially when selling.

Understanding the nuances of each type of valuation report is crucial. Certified, independent, and broker’s opinions of value each serve their own distinct purpose, and cater to different needs and situations. When choosing the right valuation for your business, remember to keep your specific needs in mind. Your business is one-of-a-kind — shouldn’t its valuation approach be too?

If you’re interested in obtaining a broker’s opinion of value, don’t hesitate to reach out. It can help set the scene for setting strategic goals and ensuring that your business is on the right financial track.