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 Others are contractually outdated; prudent buy-sell agreements should stipulate annual reviews.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 a 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. Each assignment is different, and each appraiser has a different fee schedule. However, typically you will have to spend several thousand dollars to get a full, comprehensive appraisal report.
I am thinking about selling either part or all of my business. Do I have to get a business appraisal?
We are 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 be 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.
Can 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 can not 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, we have business appraisers that are qualified and experienced in providing expert witness testimony. We will work with your attorney and support our appraisal in court.
We love to educate and inform people about what we do, so please don't hesitate to contact your nearest NBVG professional with ANY business valuation that you have!