Business Valuation

Business Valuations

Reasons to Get a Business Appraisal

There are many reasons why a business may need to be appraised. Here are the most common reasons. 

Click on a Reason for a More Detailed Explanation.

Frequently Asked Questions

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 Others are contractually outdated; prudent buy-sell agreements should stipulate annual reviews.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.

If public companies are trading at price to earnings multiples of 10, 15, or higher, shouldn’t my business be valued based on the same multiples?

In a word, no. Public companies with access to public markets are typically worth more than most closely held businesses. Choosing the correct multiples requires an in-depth analysis by a qualified business appraiser.

I recently had my house appraised and it cost me $350. How much is a business appraisal going to cost?

A business appraisal is much more complex and takes a lot longer to complete than an appraisal of a house.

I am thinking about selling either part or all of my business. Do I have to get a business appraisal?

We are also business brokers and often help people derive an appropriate asking price for their business without an appraisal. We also provide limited appraisals or computations for less cost than a full business appraisal.

If I give my son or daughter stock in my company, do I need a business appraisal?

We recommend that a business appraisal is done whenever a potential gift tax is involved. If the Internal Revenue Service audits the gift, the burden of supporting the value of the gift given is on the taxpayer. A properly done business valuation should help establish the value of the gift and demonstrate to the IRS that everything was done properly.

Why can’t I have my CPA appraise my business?

CPAs are great at what they do: help you prepare financial statements and tax returns, and assist with many financial decisions. However, very few CPAs have been trained to perform business valuations. Unless your CPA is accredited in business valuation, you should use a valuation expert to appraise your business. Also, your CPA cannot be independent since they do your accounting work, even if they are accredited in business valuation. Most CPAs are not willing to appraise their own client’s business even if they are qualified to do so.

Will you be able to testify in court about the value of my business?

Yes, Paul Hyde is qualified and experienced in providing expert witness testimony. We will work with your attorney and support our appraisal in court.

Revenue Ruling 59-60 ("the Bible")

Revenue Ruling 59-60 is considered the "Bible" of business appraisers. It is quoted more often by business appraisers than any other document. In order to review a copy of the Revenue Ruling.