Thinking of selling your business? Three reasons to get an objective business valuation.

Apr 19, 2024

Buying or selling a business is one of the triggers for getting an objective, thorough, business valuation. 

It is reasonable to ask yourself, do I need a business appraisal or is a broker opinion of value (BOV) that a business broker offers sufficient?

Three reasons why business owners should get a business appraisal instead of relying on a broker’s opinion of value:

1. The party wants an objective, independent valuation. 

Business owners thinking of selling their business may wonder if the business broker is preparing the opinion of value to secure the business listing. For this reason, business owners thinking of selling should secure a business valuation from a certified business appraisal professional to have an independent, objective valuation that manages their expectations and then engages a business broker to market their business.

2. You want to understand ‘why’.

You want to know why your business was valued where it was. An in-depth, thorough, and objective valuation of your business supports why the valuation number was determined. It presents the supporting evidence clearly and logically. A broker’s opinion of value does not include this level of detail. 

The why can be incredibly helpful for a business owner thinking of selling sometime in the future as the report defines the business value drivers today and presents opportunities that could drive the value more. For this reason, the valuation is informative and provides a roadmap of what actions the business owner(s) could take to drive its valuation higher in future years. I have seen many wise business owners invest in a detailed business valuation to help them drive value in a defined time period to then sell. 

3. There are other parties involved.

This is a significant motivator for hiring an independent business valuation professional who does not have a stake in the valuation. In other words, when there are other interested parties involved in selling the business (e.g., fractional owners), there is a high likelihood a broker’s opinion of value is going to be contested and questioned. Preparation of a thorough and detailed valuation by an uninterested party reduces the concern of being impartial and includes the level of detail that stands up to scrutiny including the IRS or parties who have different motivations or perspectives. 

I work with many business brokers and have great respect for the services they provide. There are many business brokers who eliminate the concern of not being objective (Reason #1 above), by encouraging their client to hire me to prepare an objective business valuation and then the business broker handles marketing the business once the valuation is complete.

A broker’s opinion of value is a useful deliverable, but for the above three reasons, a business appraisal developed by a certified valuation professional provides additional value that is worth considering.

When Values Matter.

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