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If you are a business owner, at some point you are probably going to need to have the company valued. There are various reasons why. Selling the company, or some other exit transaction may require it. You might have to get the company assessed because of a divorce or partnership dissolution. Sometimes it is necessary for financial and tax reporting. Whatever the case, you will need the services of a professional business valuation appraiser. Before hiring one, there are some things you need to know about the process.
Appraisers use three different methods to evaluate companies. They may choose the market approach. This method assesses a company based on finalized sales of comparable companies. They may select the income approach. They use this method to compare potential advantages of investing in an enterprise and weigh that against the risks of taking on the responsibility. Financing differentials, input of capital, and growth in revenue are counted in the income approach.
The asset approach is the third type of appraisal. This one assesses a company's assets for value with the liabilities removed. The asset approach is not applicable for a company with high intangibles. It is appropriate for a company that is under performing.
Company values are never static. They may change dramatically, or better or worse, over time. An appraisal is only valid for a limited time period. After the time has passed it can still be used by potential purchasers and their attorneys as a point of reference for historical value. For purposes of legal and financial transactions, the only appraisals considered valid are those that are current.
It's important to retain the services of the most experienced professional available. Anyone can claim to be an appraiser, but not everyone has the appropriate certifications. There are various certifications professionals in the industry can obtain. The most sought after appraisers have Accredited Senior Appraisers or Certified Business Appraisers designations. These certifications require the most detailed training and experience. The Certified Valuation Analyst and Accredited in Business designations are less prestigious.
You will be asked to provide certain documentation in order for the analyst to perform an accurate assessment of your company. These documents may include four or five years of tax returns, profit and loss statements, and the current year's balance sheets. You will also be asked for inventory lists, product or services descriptions and detailed liability information.
A valid assessment must include a reasonability test. When lenders are assessing whether or not it is feasible to loan a prospective purchaser the funds to invest in a particular company, they must be able to justify the purchase price. Lenders have to be assured that the company's cash flow can handle the debt and taxes while still providing a reasonable return to the buyer.
Some appraisers charge by the hour while others charge a set fee. They itemize expenses and bill them separately. The final cost will depend on the purpose and complexity of the evaluation. Assessments may run anywhere from five thousand to thirty thousand dollars.
Appraisers use three different methods to evaluate companies. They may choose the market approach. This method assesses a company based on finalized sales of comparable companies. They may select the income approach. They use this method to compare potential advantages of investing in an enterprise and weigh that against the risks of taking on the responsibility. Financing differentials, input of capital, and growth in revenue are counted in the income approach.
The asset approach is the third type of appraisal. This one assesses a company's assets for value with the liabilities removed. The asset approach is not applicable for a company with high intangibles. It is appropriate for a company that is under performing.
Company values are never static. They may change dramatically, or better or worse, over time. An appraisal is only valid for a limited time period. After the time has passed it can still be used by potential purchasers and their attorneys as a point of reference for historical value. For purposes of legal and financial transactions, the only appraisals considered valid are those that are current.
It's important to retain the services of the most experienced professional available. Anyone can claim to be an appraiser, but not everyone has the appropriate certifications. There are various certifications professionals in the industry can obtain. The most sought after appraisers have Accredited Senior Appraisers or Certified Business Appraisers designations. These certifications require the most detailed training and experience. The Certified Valuation Analyst and Accredited in Business designations are less prestigious.
You will be asked to provide certain documentation in order for the analyst to perform an accurate assessment of your company. These documents may include four or five years of tax returns, profit and loss statements, and the current year's balance sheets. You will also be asked for inventory lists, product or services descriptions and detailed liability information.
A valid assessment must include a reasonability test. When lenders are assessing whether or not it is feasible to loan a prospective purchaser the funds to invest in a particular company, they must be able to justify the purchase price. Lenders have to be assured that the company's cash flow can handle the debt and taxes while still providing a reasonable return to the buyer.
Some appraisers charge by the hour while others charge a set fee. They itemize expenses and bill them separately. The final cost will depend on the purpose and complexity of the evaluation. Assessments may run anywhere from five thousand to thirty thousand dollars.
About the Author:
You can get a summary of the things to keep in mind when picking a business valuation appraiser at http://www.bvgllc.com right now.
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