As a business owner, the time will come when you’ll need to secure a business valuation that adheres to the Uniform Standards of Professional Appraisal Practice (USPAP). The USPAP are national standards applicable for most U.S. appraisals, adopted by Congress in 1989. Whether you need the valuation for tax purposes, exit planning, a planned merger, or due to litigation, there’s a good chance you have questions about the process. Read on for answers to frequently asked questions about business valuations.
What Exactly is a Business Valuation?
A business valuation is used to determine the economic value of a company or business. It is a comprehensive process performed by a professional appraiser. To determine this value, all aspects and areas of the business must be thoroughly analyzed by a certified business appraiser.
Reasons You May Need a Business Valuation
There are dozens of reasons and benefits of having a business valuation. It can be used to determine a fair value in the case of a sale. It may be required for tax purposes including charitable giving and gift giving. In other cases, you may need this valuation in the event of divorce, partnership disputes, and shareholder disputes.
Additionally, many business owners opt to schedule a valuation to find weaknesses, risks, or liabilities in their operations. But in most cases, it will be done before the purchase or sale of a business.
How is My Business’s Value Determined?
There are three different approaches that a certified business appraiser may use to determine the value of your business. The asset approach will measure the value of your business, by accounting for all assets and liabilities. The income approach to valuation involves weighing the benefits of an investment in a company, versus all risks and uncertainties, to determine a required return on investment. A market approach to determining the fair value of a business uses comparable businesses and completed transactions to determine value.
How Long Does the Process Take?
The length of time will depend in part upon how quickly you can provide your appraiser with the information that they need. In some cases, it may only take a couple of weeks. In other cases, a complete valuation may take a few months.
How Long is a Valuation Good For?
A valuation doesn’t expire, per se. This is because it provides the value of the business at that specific moment in time. However, if you are planning to buy or sell a business, it’s smart to secure an updated valuation.
What Will I Need to Provide a Business Appraiser?
You will need to prove claims of income by providing documentation such as balance sheets, tax returns, profit and loss statements, inventory lists, asset lists, and details about all liabilities.
How Do I Find a Credible Business Appraiser?
When looking for a business appraiser to conduct a credible valuation, be sure to look for designations and memberships indicating experience and skill. Some of the most prestigious designations include Certified Business Appraiser (CBA), International Society of Business Appraisers (ISBA), Certified Business Intermediary (CBI), and the National Association of Certified Valuators and Analysts (NACVA).
Get an Accurate Business Valuation in Oregon
At Northwest Business Sales & Certified Appraisals, Business Broker Patrick Bice has years of experience providing buyers and sellers with accurate valuations for their businesses. To book a consultation, send us an email or call 541-968-2728.