Valuation vs. Appraisal – Which One Do I Need?

When you approach the end of your business ownership journey and are preparing to sell, you need to determine the market price of your business. A business’ market price is dependent on current market conditions, it’s history of success & profitability, future profit forecasts, goodwill, stock, assets and much more. Determining the ‘value’ of your business during this process leads to many business owners thinking they require a ‘valuation’ – however, this may not be the case. Let us explain the difference between a business valuation and a business appraisal, so you can determine which suits your situation best and what to ask for when consulting with your business broker.

What is a business appraisal?

A business appraisal is a service that all business brokers should provide. It involves their calculated appraisal of your business, taking into account several important factors and using their wealth of industry experience to lead the way. Due to this being an educated opinion, you may find that you receive different values with different brokers. Keep in mind, that a good broker will be honest and set realistic expectations – even if this means disappointing you in the short term. After all, there is no point in raising expectations and listing your business for double the realistic market price and then have it remaining on the market for years without any serious interest. That being said, you want to make sure you engage a trustworthy, experienced business broker who will take into account all necessary information to appraise your business properly and provide you with an honest and realistic value range whilst being able to explain the rationale in arriving at this conclusion.

If you are concerned with your appraised market price, discuss this result with your broker. At Core Business Brokers, we are happy to sit down and explain how we’ve come to the market price presented, as we believe honesty and transparency throughout the business sale process are key. In addition, having one of the Principals as a qualified accountant means that they can engage professionally with your accountant in making the assessment.

What is a business valuation?

 A business valuation is performed by an accredited business valuer. Unlike an appraisal, not all business brokers can conduct a valuation. There are a couple of big differences between a business valuation and an appraisal. Firstly, most business brokers do not charge for a business appraisal – it is performed in the hope that the seller will list their business with them if they decide to go to market. A valuation, however, costs between $3,000 and $4,000 on average. Why do Valuers charge for this service? Because a valuation is much more in-depth than an appraisal. Commonly used for court proceedings, taxation or insurance requirements, banks and the ATO require a high level of detail and accuracy when a business broker conducts a valuation. A valuation is a handy tool for potential buyers, as it is a more accurate depiction of the business.

If you are still unsure as to which service you require in your unique situation, contact Core Business Brokers today on (02) 9413 2977, or email Roy on [email protected]. One of our professional and knowledgeable team will be more than happy to discuss your options and answer any questions you may have.