What Is A Business Appraisal and Do I Need One?

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There’s something to be said about knowing your worth. Your business is no different. Understanding when a business appraisal is necessary and what it can do for your company can help you take on transitions with confidence.

What is a business appraisal?

Sometimes called a business valuation, a business appraisal looks at your income, your assets, and the current market to determine a numerical value of your company. It also takes into account risks of owning that business. Professional appraisers can help, but oftentimes, people prefer that their business coach takes on the task. They know more about your business than a stranger would, but they can also maintain impartiality.

When do I need an appraisal?

Any major transition or change is appropriate for an appraisal. That can include times when there are legal disputes being waged against your business, such as bankruptcy. Some examples are:

  • Selling the business
  • Applying for a loan
  • Legal disputes, including disagreements with business partners
  • Exiting the business
  • Buying another business

How is valuation determined?

While every business appraiser has a unique approach to valuing your business, there are 5 steps that should absolutely be accomplished by the end of the process:

  1. Work together to determine the goals of the valuation and the scope of the work. Discuss what aspects of the business are being appraised and why the process is being initiated in the first place.
  2. Spend time discussing the business, including its origins, its financial history, and what the ideal future of the business looks like. In the meantime, the appraiser will look at market data to come up with a more general idea of where your business fits in the macroeconomy.
  3. Analysis financial statements to reconstruct a picture of financial trends within the business.
  4. Come up with a final number that represents what the business is worth.
  5. Compile all information into a report that can be used in any situation in which a business appraisal is necessary.

Working with your business coach can help accelerate the process and ease your exit transition. Business valuation is a critical step that will help make the best choice for your business. Check out how Catalyst Group ECR can help! We look forward to hearing from you!

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