Business Valuation Cost: What to Expect
What Does a Business Valuation Cost?
A business valuation varies in cost depending on who is performing the valuation, what size company you are, and what information is included in the report. Some businesses do valuations as their sole offering while others use valuations as a tool to help prospective clients with roadblocks in their businesses. A business valuation provides a greater degree of accuracy than an online valuation calculator might.
Business consultants often provide a business valuation as a way to establish a client relationship and learn how they might assist with future growth or sale of a business. A valuation provides a roadmap for the consulting relationship, the client’s goals, and whether the client is performing profitably. Some business valuations cost money while others don’t. Some due diligence is required to seek out an experienced and reputable company to do the valuation.
So let’s dive into the specifics of what you can expect from a business valuation.
Business Valuation Cost: What’s Included?
A business valuation may cost nothing depending on who is completing it for you, but what is it expected to include? Well, it depends a lot on the type of valuation. Some companies require a business valuation for litigation purposes or in preparation for a buy and sell agreement. The average cost of a business valuation could range anywhere from $3,000 to $10,000.
Valuation is a generalized ball-park term when describing the report venture capitalists, entrepreneurs, investors, and corporate mergers and acquisition teams use to measure the health of a business. A valuation could mean examining a company’s assets and liabilities, conducting a risk analysis, or projecting future cash flows and market opportunities. The more complex the research involved in your valuation (specifically in instances of litigation) , the more it will cost. It largely also depends on who is doing the valuation.
Any competent business valuation team will include a team of experts in the financial, business leadership, and legal sectors who are experienced in preparing sensitive financial documents. Part of the client’s responsibility is to ensure that there is adequate experience in the right industries backing the valuation they receive. For example, someone who has a farming or agriculture business probably wouldn’t find it helpful to receive a business valuation from someone who exclusively prepares valuation reports for healthcare companies. Try and find a company that has performed valuations in your industry.
You also might request a sample report before purchasing (if it costs anything for the valuation).
Understanding the Average Cost of Business Valuation
It is important to understand that a business valuation shouldn’t be massively expensive to be helpful, and here’s why. The type of appraisal obtained is largely dependent on the type of information the client is seeking. If the client is attempting to negotiate a complex buy-out or evaluative process that requires deep financial metrics, it’s best to seek out certified financial planning experts or legal counsel to ensure the right documentation is in place (or an organization that offers both).
However, this isn’t the only instance for which a business valuation is prepared. There are a number of different methods and types of business valuation. A business valuation can focus purely on a company’s financial metrics, helping a legal team to parse assets in the instance of a buy-out, or it can diagnose gaps in a company’s strategy that is leading to profit losses or missed opportunities. A company’s worth is measured through a range of standard metrics which we will cover next.
What to Expect with a Business Valuation
Of the types of data you can expect in a business valuation, revenue growth is a central figure. A company’s year-over-year performance in its market is important for a potential buyer of a company to see. Cash flow, profit, and loss statements, and operational debt are other metrics a potential business buyer might want to see from a business owner. Financial metrics provide a fuller picture of where the company is currently and where it is projected to go.
Other intangible assets are also reviewed as part of a business valuation. These can include a range of factors impacting a company’s likelihood of success. Examples of intangible assets could include expansion opportunities into new markets, an estimation of a company’s dependency on key suppliers or customers, differentiation from competitors, and things like customer loyalty to the brand.
What is the Difference Between a Valuation vs Evaluation?
While it may seem that there is a difference between valuation and evaluation, it is merely semantic. In the business world, consultancies and financial advisors use the terms interchangeably to describe the process of estimating a business’ total and future value. Unlike other industries, when it comes to a business valuation, there is no central authority or body that regulates what is official and what is not. So in some sense, a business valuation is more art than science.
However, the clear and plain goal of most business valuations is for the report to take the findings of a company’s financial statements and outlook and to make a statement about its value to a third-party or business owner. You need not worry about the difference in how the terms valuation and evaluation are used because there is no fundamental difference in what they signify.
Business Valuation Cost with Coachwell
The business valuation cost is as varied as the purposes for which you would obtain a business valuation. Some are complimentary, but a deep-dive financial analysis in preparation for a sale would likely fall into the category of a corporate mergers and acquisitions relationship, rather than a business valuation.
Fortunately, Coachwell offers both! That is why our business valuations to clients are free. You can check out how much your business is worth, consult with a team of our business growth experts, and decide if the time is right to begin a working relationship with a business coach. Ready to sell? Get a consultation from our corporate mergers and acquisitions team and prepare to press “go” on your business sale. We are here for your varied needs, whether that is for now or in the future!
