Business Valuation: Frequently Asked Questions (FAQ)

Have more questions about business valuation? At George & Company, we’ve put together a list of frequently asked valuation and appraisal questions and their corresponding answers to get you started.

What is the difference between a Business Appraisal, Valuation, or Evaluation?

The appraisal buyer must beware in this case. If the professional you contact cannot or will not provide an appraisal, a red flag should wave immediately. While it is common for many business appraisers to intermingle these terms, persons not qualified to provide expert appraisals, litigation support, expert testimony, reports that may face the scrutiny of Federal or State agencies, judges, and the like may try to sell you something short of what you really need.

An evaluation is a commonly used term that usually falls short of the requirements of the Uniform Standards of Professional Appraisal Practices (USPAP). Make sure the professional you choose has the proper training in USPAP procedures. Has the person provided reports that meet the above requirements? Have they qualified and testified in business valuation issues in a court of law? Have they taught or lectured on the issues of business appraisal? All these and many more credentials such as years of experience, professional memberships, education, experience in the real world of business sales, etc. will help guaranty that the appraisal you receive will provide you with the report you need. When choosing a person to place a value on your business, ask for their resume or Curriculum vitae (CV) to aid you in accessing their credentials.

When should I get a valuation for my business?

Valuations should be done anytime it’s important to know the value of your company. Usually this is done when having a solid number for the worth of your business can help you get the most out of it. Some examples include:

  • When selling your business.
  • When buying a business.
  • Mergers or acquisitions.
  • During a divorce.
  • As a shareholder of the company.
  • Entering into a buy/sell agreement.
  • Real estate or tax issues.

Valuations are typically valid for 12 months, as financial conditions change frequently. Learn more on our Business Valuation page.

What kind of valuations are there?

There are many different kinds of valuations to get the most out of your company’s value. Here are some of the common methods we use to determine the value of a business.

  • Asset valuation
  • Capitalization of income valuation
  • Owner benefit valuation
  • Multiplier or market valuation

Contact us to find out which will help you maximize your business’s value.

What is included in the valuation?

What is included in a valuation depends on the type of valuation you’re going to get.

For example: Asset valuation is the value of capital assets and fixed assets a company possesses in its financial portfolio. These values exist on the owner’s balance sheet but are not usually stated in the real world but more for reasons of taxation.  Certain tools like, quantitative methods and statistics, financial statement analysis, ratio analysis and economic analysis, etc. are necessary to put a fair market value on them.

How much do valuations cost?

The cost of a valuation depends on the type of business and the extent of the valuations. Costs range from our Basic Business Valuation, which is free, to $1000 to $10000 depending on the size of the company and the type of the valuation, such as our Strategic Options Analysis.

What is the fair market value of my business?

Fair market value is an estimate of what a willing buyer would pay to a willing seller in a free market (both having equal knowledge of the business and transaction variables), for an asset or piece of property under conditions where neither party feels pressured or obligated to buy or sell. If a transaction occurs within the aforementioned conditions, the transaction price is usually the fair market value. This is not the same as intrinsic value which an individual may place on an asset, meaning what he or she feels the selling/purchasing price should be based on personal preference.

Should I get a valuation before I sell my business?

Selling a business is far different from selling a house or other tangible asset where there exists comparable sales information sufficient to support a value. Unlike real estate, it is not unusual for 50% or more of an operating business’s value to be based on intangible assets such as goodwill, intellectual property, licenses, location, etc. Valuations give you that ability.

How can I prepare for a business valuation?

When you come to George and Company for business appraisals, we start by asking you to provide us with a number of items that will aid us in developing a value for your company. The most important information we will request are financial records and documentation.

In most instances we will ask you for a minimum of three years of tax returns and/or financial statements. Due to the fact that financial statements are typically a more accurate picture of your company’s financial position, emphasis may be placed on these documents.

Other important information includes the history and description of the company, the competition, and the local economic conditions surrounding your business’ location, or the global economic conditions if your business trades on a global scale.