If you’re a business owner, figuring out the value of your company is probably one of the biggest decisions you’ll ever make. I mean, your business is your baby – you’ve put blood, sweat, and tears into building it up. You want to make sure you get a fair valuation when it comes time to sell, get financing, or just understand what your net worth is.

The problem is, determining that value isn’t always straightforward. There are so many factors to consider – from assets to future earnings potential to market conditions. Doing it yourself often leads to a number that feels kind of arbitrary.

That’s why getting an objective appraisal from a qualified professional is so important. But not all appraisers are created equal. Choosing the wrong one could leave you with an inaccurate valuation that costs you big time down the road.

So how do you find the right appraiser? That’s what this guide is all about. I’m going to walk you through everything you need to know to pick the best person for the job. From understanding the different types of appraisals, to spotting the right credentials, to asking the hard questions, you’ll have the inside scoop on finding a pro you can trust.

I want this to feel like you and I are having a casual conversation, not some stiff, formal article. My goal is to make this process feel simple and straightforward so you can get the accurate appraisal you deserve. So kick back and let’s get started!

Why You Need a Business Appraisal

Before we jump into the nitty gritty of choosing an appraiser, let’s chat for a minute about why you need to get your business valued in the first place.

There are actually a bunch of reasons you may need to get an official appraisal:

• You’re looking to sell your business. An appraisal gives you that magical number – a fair market valuation you can use to set your asking price or negotiate offers. You don’t want to leave money on the table because your valuation was off.
• You need financing for an expansion or investment. Banks want hard numbers before they’ll lend you money. An appraisal gives them confidence in the actual value of your company.
• You have partners or shareholders and need to divvy up ownership interests. Appraisals can settle disputes over who gets what share by providing an impartial value assessment.
• Estate planning for you or family members who have a stake in your business. Appraisals are key for inheritance and tax planning purposes.
• You want to gift or sell part of your business to family. Again, you’ll need that objective valuation.
• You’re buying another company. Appraisals prevent you from overpaying by showing you the company’s true market value.
• Your company is publicly traded. Public firms need routine appraisals for accurate financial reporting.
• Divorce involving jointly owned assets. Appraisals determine values to split things up fairly.

No matter the specific reason, the bottom line is getting an appraisal protects your financial interests. Don’t wing it without a professional valuation – too much is at stake.

Okay, now that we’re clear on why you need one, let’s get into the different types of appraisals out there.

Types of Business Appraisals

There are several types of appraisals that business owners commonly need. The type of valuation you need will depend on your specific goals and situation. 

Fair Market Value Appraisals

A fair market value appraisal is the most comprehensive and commonly used type of business valuation. It assumes a hypothetical transaction in an open market between a willing buyer and seller, without pressure to buy or sell. 

The appraiser will use a combination of the income, asset, and market approaches to value the company. This gives the most objective estimate of what price your company could be sold for on the open market.

Cash Flow Appraisals 

For companies that are heavily focused on producing cash flows vs tangible assets, a cash flow appraisal may be used. This focuses on the company’s ability to generate cash expressed as a discounted cash flow analysis. It involves projecting future cash flows and discounting them back to the present using a risk-adjusted rate.

Liquidation Appraisals

A liquidation appraisal values a business based on the net amount that would be realized if all assets were liquidated and liabilities settled. This is used for companies going out of business or bankruptcy proceedings. It assumes a distressed sale of assets.

Breakup Value Appraisals

A breakup value appraisal looks at the value of selling off different divisions or assets of a company separately. This is used for companies considering a divestiture of a specific business unit or subsidiary.

Limited Appraisals

For simple valuations, a limited appraisal may focus only on specific company assets, such as real estate or equipment. This can reduce costs when only one part of a business needs to be valued.

Compulsory Acquisition Appraisals

These specialized appraisals are needed for compulsory acquisitions under eminent domain, expropriation, or nationalization laws. An independent valuation ensures fair compensation.

Discuss the specific goals for your valuation with appraisers to determine which type of appraisal is right for your needs.

Qualifications to Look for in an Appraiser

Not just anyone can provide a legally defensible business valuation that will hold up to scrutiny by courts, IRS, shareholders, or auditors. Appraisers need to have the right combination of education, professional credentials, experience, and ethical standards.

Here are the top qualifications and certifications to look for:

– Business Degree: An appraiser should have at minimum a bachelor’s degree in business, finance, accounting, economics or a related field. An MBA or graduate degree is ideal.

– Certified Valuation Analyst (CVA): The CVA from the National Association of Certified Valuation Analysts is one of the most respected credentials. A CVA has training in valuation methods, report writing, and professional standards.

– Accredited in Business Valuation (ABV): The American Institute of CPAs awards the ABV to CPAs with considerable valuation experience who pass a comprehensive exam. Look for an ABV, especially for complex valuations. 

– Accredited Senior Appraiser (ASA): The American Society of Appraisers awards the ASA for advanced education, five years of full-time appraisal experience, and an extensive demonstration appraisal report.

– Certified Business Appraiser (CBA): The Institute of Business Appraisers issues the CBA designation. It shows proficiency in appraisal process, analysis, and IRS regulations.

– Licensed or Certified in Your State: Many states require appraisers to obtain a state license or certification to offer appraisal services. Check your state’s requirements.

– Business Valuation Certification: Appraisers may have certifications specifically focused on business valuation, such as the CEIV credential from the International Institute of Business Valuers. 

– Member of a Valuation Organization: Membership in a valuation organization like the American Society of Appraisers or National Association of Certified Valuators shows commitment to the field.

Don’t just take someone’s word that they are qualified. Verify professional designations on the issuing organization’s website and check state license databases.

Where to Find Qualified Appraisers 

Now that you know what credentials to look for, where should you go to find qualified, certified appraisers? 

Here are good resources:

– Appraisal Organizations: National appraiser organizations like the American Society of Appraisers have search tools for finding members in your state.

– CPA Firms: Many CPA groups have partners that specialize in business valuation and hold ABV credentials.

– Business Brokers: Reputable business brokers likely network with accredited appraisers regularly. They may provide referrals.

– Trade Groups: If you belong to any business trade organizations or chambers of commerce, check there for recommendations.

– Lenders: Banks that lend to small businesses may be familiar with certified appraisers in your region.

– Attorneys: Mergers and acquisition attorneys or business lawyers can suggest appraisers they trust.

– State Licensing Databases: Your state likely has an online license lookup for appraisers. Search for active licensed or certified appraisers.

Avoid just searching online or grabbing the first appraiser you find. Take time to research and verify credentials and experience.

Questions to Ask Potential Appraisers

Once you’ve identified several potential certified appraisers, take time to interview them before making a selection. Here are key questions to ask:

– What credentials, licenses and certifications do you hold? Can you provide documentation?

– How many years have you worked in professional valuation services?

– How many valuations have you performed in the last year?

– What is your experience in my specific industry and with companies of similar size?

– What valuation methods and standards do you follow? Are you familiar with USPAP standards?

– Who will be involved in the valuation? Do you handle the inspection and report yourself or use staff?

– Can you provide 2-3 client referrals from similar valuations?

– What is your general process and timeline for completing appraisals?

– Do you carry errors and omissions insurance for liability?

– What is your fee structure? Do you charge by the hour or by the job? 

– Do you provide a written report with the valuation methodology explained?

Pay attention not just to the appraiser’s answers, but their professionalism, communication skills, and expertise demonstrated in the discussion.

How Much Does a Business Appraisal Cost?

Appraisal fees can range widely depending on the size of the business, complexity of the valuation, level of detail needed, amount of documentation required, and the location of the business. Typical ranges include:

– Small Business: $2,000 – $7,000+

– Mid-size Business: $5,000 – $20,000+ 

– Large Complex Business: $25,000+

Many appraisers charge by the hour, with rates from $150 to $500 per hour depending on experience and credentials. Others charge a flat fee based on the expected scope of work. Industry specialists tend to charge higher rates.

To get an accurate estimate, provide the appraiser with some basic details about your company’s legal structure, size, assets, financials, and the purpose of the valuation. Most will offer a free initial consultation to provide a fee quote.

Look for any hidden fees or excess charges beyond the agreed upon rate. Make sure to get a written service agreement detailing the cost. Also understand what is included and excluded to avoid surprise charges.

Making the Final Decision 

Finding the right appraiser is about more than just selecting the lowest bidder. You want an accurate valuation from a reputable professional. Use these tips when making your final choice:

– Verify all credentials, licenses, certification, and references provided.

– Prioritize appraisers with substantial experience in your specific industry.

– Understand how the appraiser’s assumptions and methods will impact the valuation.

– Look for good communication skills and transparency about the process.

– Consider solo appraisers vs. large firms – both have pros and cons.

– Review sample appraisal reports to understand the deliverable.

– Move forward with the appraiser that seems to best fit your needs and budget.

– Start early – quality appraisers may need scheduling lead time.

If an appraiser ever pressures you or makes you uncomfortable about hiring them, it’s usually best to move on. Trust your instincts if something seems off.

Conclusion

Selecting the right appraiser for your business is an important decision not to be taken lightly. Take time to understand your specific valuation needs, research qualified professionals, evaluate experience and credentials, ask key questions, and thoughtfully evaluate candidates.

With an accurate, ethical, and detailed valuation report from a certified appraiser, you can confidently move forward with major financial transactions, estate planning, litigation, or business transitions. If selling your company, it can mean the difference of hundreds of thousands of dollars or more.

While appraisal costs may seem high, a quality appraisal almost always pays for itself many times over by guiding crucial business decisions and preventing costly mistakes. In the long run, skimping on a substandard appraisal could negatively impact your wealth and assets for years to come. Do your homework to get it right the first time.