Business appraisals can be described as an economic analysis or professional engagement that is used to value a business, practice, or other business assets. These are essential tools for business owners and should be considered from the moment a business idea is created through its entire life cycle.
There are many reasons to appraise a business.
These are the top ten reasons to get a certified business assessment.
– You are in the startup stage of your business and need to evaluate it in order to decide how much you will give investors for seed capital.
– If your business is established and must provide quarterly or annual updates to investors or other stakeholders. This will provide your stakeholders with a clear picture of the financial health of your business and show them the value of their current investments.
– There may be an opportunity to merge or sell your business. This decision must be made quickly. You can take advantage of these opportunities by having a current business appraisal.
You might want to partner with a new partner, but you will need to assess the business’s value to determine the buy-in price.
– Small-business owners have many options for fundraising. It is essential to understand the company’s value before you start fundraising.
– Your bank may lend money to you to help you expand or build new facilities.
– To calculate the annual per-share value for an Employee Stock Ownership Plan. ESOP can be used to share the ownership of your company with your employees.
– To plan for gift tax purposes, such as the transfer of an interest to family members, donation or transfer to trust with an intentionally defective grantor, etc.
– To support litigation purposes, to determine economic damage, lost profits, uncover fraud or value of a company in a shareholder dispute or partnership dispute.
It is identifying whether the business is growing or stagnant to determine the best way to restructure it.
Business Appraisal Techniques
These are some of the techniques for business appraisal:
Asset Approach
To determine the assets’ value, the asset approach looks at the assets of a business. This approach is essential for businesses that are closing down or being liquidated.
– Income Approach
This approach focuses on the primary purpose of the business: the income it generates from its operations. Analyzing the income streams and expenses is done in detail. Future income and expense projections are also considered.
Market Approach
This method treats the business as an item that is available on the market for sale or purchase. This approach relies on the discovery of similar businesses or comparable businesses that have recently been sold.
This is not an exhaustive list, and there may be other reasons a business appraisal might be required. A certified business appraisal, which is a detailed financial analysis, should only be performed by qualified valuation professionals with the required credentials.
