When discussing the concept of business valuation vs. appraisal, the terms are commonly used interchangeably. However, there are actually two specific distinctions:
1. Typically, physical assets are appraised; intangible assets are valued.
2. An appraisal serves as a pricing guide but has no legal standing; a valuation provides a definitive value that can be used for legal matters.
A more accurate understanding of the terms “business valuation vs. appraisal” distinguishes that an appraisal is part of a thorough business valuation.
Businesses have both tangible and intangible value. The business’s tangible assets, such as inventory and equipment, can be appraised like any tangible property (like vehicles or real estate) based on concrete comparisons. Intangible assets include a number of things like branding, patents and trademarks, contracts, accounts receivable, customer lists, key employees, and company reputation. Assigning value to intangible assets can be quite complicated. With this in mind and considering that the value of a business’s intangible assets normally far outweighs the tangible (unless the company is insolvent), it is wise to engage the services of an experienced business broker in the valuation process.
In a thorough business valuation, the intangible value in a business is calculated and added to the tangible assets’ appraised value to provide a well-rounded picture of the market value of the business. While a business appraisal can serve as an informal estimate or a guide on price, a formal business valuation is required for lending institutions, property settlements, and estate proceedings. If you are selling a business, we recommend obtaining a formal valuation that can stand up to extreme scrutiny.
Our business brokers not only have decades of experience in business valuations and appraisals, they can also help you avoid common mistakes, give you actionable insight on how to maximize the value of your business, and guide you through the sales & transition process if you wish to sell. If you are thinking of selling your business, we are here to help. Contact us today for a no-cost consultation, where we can provide an estimation of what your business would likely sell for and how long it might take to complete the transaction.
Related articles:
- How long does a business valuation take?
- How often should I re-value my business?
- How to Value a Business (Accurately)
