Why a Seller needs an appraisal
Independent Fair Market Value (FMV) appraisals are crucial to achieving equitable and efficient transfers of ownership. Therefore, the Colorado Business Exchange requires a FMV appraisal before listing a business for sale. Moreover, the FMV appraisal affords significant value to our clients.
The FMV appraisal helps owners make an informed decision to sell. Obviously, they need to know what their business is worth in today’s marketplace before deciding if selling a company is in their best interest. An independent FMV appraisal tells them quickly, economically, and confidentially. Only after deciding that they would rather have the FMV in cash, than the business, are they ready to begin the arduous process of preparing, listing, marketing, showing, negotiating, and contracting for the sale of their business.
The FMV appraisal helps owners determine an appropriate asking price. Understanding the various valuation methodologies and how they support the appraiser’s conclusion of value is key to establishing an appropriate asking price. Ask too little and leave money on the table. Ask too much and waste a lot of time with buyers who will never pay it. You can be sure that ultimately buyers will only pay a fair price for any business. Owners should know that negotiations are the only way to arrive at a final value and the asking price simply opens the negotiations.
The FMV appraisal helps sellers in negotiations. Of course, the appraised value is not the only fair value for a company. Value changes daily, as the business matures, and as buyer and seller motivations change. Since, each transaction is unique, they should expect each negotiation to yield a different, yet fair, value. A FMV appraisal gives owners a powerful tool to convince a buyer of their businesses’ true worth. Without an appraisal, the buyers have the negotiating power because, in their mind, they are the only ones objectively valuing the business.
The FMV appraisal gives everyone piece of mind, setting the stage for a smooth transaction. A valuation performed by a recognized, well respected, accredited, and independent appraisal company is the best way to convince a buyer’s accountant, banker, and other advisors that a business is worth its asking price. Working through the appraisal process prepares owners and their advisors to give appropriate responses for the questions prospective buyers will ask. Typically, when negotiations start with an independent FMV appraisal, they end in a smooth transition with both parties knowing they got a fair deal.
The FMV appraisal may be most valuable if it helps an owner decide not to sell. They will spend a lot of time and effort in preparing, listing, marketing, showing, and negotiating for the sale of their business. It is not worth going through that process, and risking a breach of confidentiality to customers or employees, just to find out that they are not willing to sell for the price a buyer will pay. Consider too, the emotional strain for them and their family caused by mislaid hope in unrealistic expectations of a sale. Finally, the appraisal provides a wealth of information about a business, what it’s worth and why. It establishes a baseline for future growth and helps an owner focus on improving those things that add the most value; so, they can build their business to a point where they will sell for a fair price.