Business Appraisal

How long is a business appraisal good for?

A properly done appraisal—an assessment of a business’s intrinsic value based on characteristics such as earnings and assets—is valid as long as its underlying assumptions remain valid. Some of these assumptions change rapidly, some more slowly: external factors such as world events, economic trends, and competition as well as internal factors such as management, markets, and finances.

Some valuations, like those for Employee Stock Ownership Plans, are legally obsolete after a year and must then be updated. Others are contractually outdated; prudent buy-sell agreements should stipulate annual reviews. Estate tax returns, litigation appraisals, merger and acquisition reviews, and transaction fairness opinions are normally one-time engagements.

Most valuations are open-ended because their underlying purposes are long-term. A typical example occurs when families sell or transfer minority business interests each year as part of their estate and business succession planning.

Valuations depend on many factors, all of which can change. These include critical assumptions (such as management continuity), the industry outlook, historical financial performance, assumptions about and projections of future results, prices of guideline (comparable) companies, the price/earnings multiple and the company’s normal earnings. Typically, chances are 4 in 5 that valuation will be good for at least a year.

Click Here to Learn More