Third-Party Appraisal or valuation

A Third-Party Appraisal is a formal business valuation conducted by an independent advisory firm. Valuation professionals use a number of techniques to assess the value of a privately held business. Valuation purposes include determining the price for a sale, estate and gift tax planning, divorce settlements, employee stock ownership plans and buy-sell agreements. It is also possible to use an appraisal to establish the value to be used in a phantom stock plan.

In the life of most businesses, there will be some occasion where an independent valuation conducted by a business appraisal specialist is necessary. A number of scenarios involving transactions, taxes, ownership changes, and other events require independent third-party valuation services to ensure fairness, accuracy, and the proper oversight of fiduciary duties. In this article, we’ll examine when and how to get a business appraised, and why it’s important to have a neutral third party assess the value of your business assets.

A variety of valuation approaches are available

Other Reasons To Seek An Independent Third Party Valuation

The other reasons for seeking an independent valuation are more obvious; the scenarios themselves signal the need to establish the value of the company. These include:

  • Financial reporting and tax purposes
  • Sales transactions
  • Departure of a partner or member
  • Establishing the value of stock
  • Litigation
  • Seeking financing (equity or debt)
  • Marital dissolution

It’s important to keep in mind that each of these scenarios emphasizes different business valuation factors; the purpose for the appraisal may also dictate the most appropriate valuation methods. Thus it’s important to keep the purpose for the appraisal in mind when contracting third-party valuation services.

Valuation is a complex science and requires years of experience to master. Most offices have high turnover and this requires that they outsource the technical processes, such as valuations or appraisals, since it’s unlikely that new hires will have these skills or knowledge.

Canada Business Consulting (CBC) team can match you with a Certified Canadian Business Valuator that understands your industry, your stage of business and your overall objectives

We tailor the scope of our business valuations to our client’s specific needs and purpose of the engagement. When appropriate, our valuation report provides an overview of the company, industry, economy; discusses value drivers; outlines the analysis performed, along with the inputs and assumptions; and incorporates detailed exhibits that support our valuation conclusion. The valuation analysis is sound and the report is defensible and if challenged, we provide our clients with additional support, including serving as an expert witness at trial.

A variety of valuation approaches are available for valuations.

Several valuation methods are commonly used. Valuations can also be done with varying levels of detail. Each comes with a different cost and level of assurance that the result accurately reflects your company’s worth.

The most suitable combination depends on the purpose of the valuation and the company’s characteristics, such as its profitability, future outlook and asset mix.

Keep in mind that a valuator’s figure is just a guideline for how to approach negotiations in a sale. The final transaction price is often different and is influenced by many factors—for example, your eagerness to sell, the buyer’s strategic interests or expected synergies, available financing, due diligence and the company’s capacity to smoothly transition to new ownership.

Some business owners seek valuation advice from accounting professionals or lawyers. Accounting companies, however, are too cautious and often undervalue their clients’ businesses. Law firms, on the flip side, have a tendency to be overconfident and overrate their clients’ companies. They can overlook qualitative variables such as the overall environment, market trends, size of the company, financial efficiency, management skills, and industry structure.