{"id":16408,"date":"2022-06-08T00:58:28","date_gmt":"2022-06-08T00:58:28","guid":{"rendered":"https:\/\/www.certitrek.com\/isba\/?p=16408"},"modified":"2023-05-30T09:36:25","modified_gmt":"2023-05-30T09:36:25","slug":"would-you-appraise-my-business","status":"publish","type":"post","link":"https:\/\/www.certitrek.com\/isba\/would-you-appraise-my-business\/","title":{"rendered":"Would You Appraise My Business?"},"content":{"rendered":"

When asked to appraise a business, our answer would be, \u201cIt depends.\u201d<\/p>\n

One of the first questions to ask in response to being contacted to perform a business appraisal is to inquire about the purpose of the appraisal. There are several reasons why we would want to know the purpose of the report:<\/p>\n

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  1. The report type depends on what audience you will be writing for.\n
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    1. Will I be writing for the business owner who already understands the operating details of the business?<\/li>\n
    2. Or will I be writing to support my concluded discounts before the IRS?<\/li>\n
    3. Or will I be writing my report and expected to defend my conclusions in front of a judge after one of my peers has had a chance to review and critique my report?<\/li>\n<\/ol>\n<\/li>\n<\/ol>\n

      Each of those audiences will demand a different level of detail and focus from the appraisal and will directly impact the magnitude of both the fee one will charge for the work and the amount of time I will have to dedicate to the analysis.<\/p>\n

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      1. Each business has several different correct \u201cvalues\u201d on any particular date, and I need to know which one the client needs to be described in the report.\n
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        1. Is the business being offered for sale, and the value requested is based on the value of the assets that typically transfer in a sale? Meaning, will the seller keep the cash, accounts receivable, and pay off the liabilities?<\/li>\n
        2. Or will I be appraising the value of a 50% interest in the equity of the Company for a partner buy-out, which partner owns an equal share in each dollar of cash, accounts receivable, and debt the Company owns?<\/li>\n
        3. Or will I be appraising another ownership percentage with a different level of voting rights compared to the other equity interests held by various owners?<\/li>\n<\/ol>\n<\/li>\n<\/ol>\n

          Using any of those described scenarios to govern the valuation of a privately held business, would lead to a different conclusion of value, even if the subject business were the same for each scenario. The value of a business being sold as an assemblage of assets differs from the value of a 50% interest in the equity, which is also different from an ownership interest with varied voting right privileges.<\/p>\n

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          1. Does the requested purpose require the appraiser to use a different standard of value?\n
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            1. Will a lender use my appraisal to determine if a requested loan-to-value ratio is appropriate (fair market value)?<\/li>\n
            2. Will the appraisal report be used by a shareholder who wishes to obtain an additional 2% interest, bringing their overall ownership to an effective controlling position (investment value)?<\/li>\n
            3. Is the report to be used in an oppressed shareholder litigation action, where discounts for lack of control and marketability may no longer apply (fair value)?<\/li>\n<\/ol>\n<\/li>\n<\/ol>\n

              It is never a good practice to agree to appraise a business, then find out after the fact that your report is being used for a purpose different than what was intended. Please specify in your engagement agreements that your appraisal’s purpose is to be used. It may not prevent your report from being used for a non-intended purpose, but it may help provide some protection for yourself.<\/p>\n

              Are you looking to pursue a Business Certified Appraiser (BCA) credential? <\/strong>Visit ISBA Learning<\/strong><\/a> today. ISBA Learning is the home to our certifications and online courses. The Learning site also includes 100+ learning resources, including express courses, live and on-demand webinars, publications and reports, articles, templates, and worksheets!<\/p>\n

              Check out ISBA’s self-paced courses:<\/strong><\/h5>\n