How to Appraise a Business

If you’re planning to buy a business, you should absolutely have it and all machinery and equipment appraised as part of the buying process. The same is true if you inherit or are gifted a business that you’re not already intimately familiar with. An appraisal will tell you the value of your business and give you a fair selling or buying price based on the assets of the business and the past profits.

Make a Personal Inventory

Before contacting an appraiser, take inventory yourself to see what items are in the warehouse, factory or kitchen of your new business. Make a list or find the original inventory in the company records to check against. Knowing what you have will help you discuss your appraisal situation with appraisers and put you in a better position of knowing and understanding what your new purchase will entail. If you’re in the process of buying a business and can’t make a personal inventory, have your broker request one to use with your appraiser.

Contact Business Appraisers

Ideally, you’ll be able to find a specialist in the area you’re considering buying into to perform a business appraisal. The more specialized an appraisal is in certain forms of businesses and their common assets, the better your appraisal will be. Knowledge and experience can account for much in the complex calculations and variations that go into an appraisal. A specialized business appraiser will also be able to recognize when machinery has been patched or repaired or is on its last legs – all critical to a reliable appraisal.

Walk Through The New Business

Work closely with your appraiser every step of the way. Without getting in his way, walk through during formal appraisals and research periods with your agent. Walking and listening and taking notes will aid you tremendously as the appraiser might be able to share more information in this way than he can in a formal report. But if you’re not able to accompany him, a follow-up conversation in addition to the report should suffice.

Share Information With The Seller

You’ll want to share your appraised value with the seller if it is impacting pricing to your benefit. If the business appraised at far less than the asking price, you’ll have room for negotiation with the price. If the building and business appraised higher than the asking price, it would be wise to admit only that the appraisal found the asking price to be in the correct range.

Easy Step By Step Instructions When Appraising a Business

• Walk through and get a feel for the assets of the business before calling appraisers
• Find a quality business appraiser through recommendations and references.
• Accompany your appraiser as much as possible to glean information.
• Share appraisal information with the seller where it benefits you and your negotiations.

Warnings, Advice, and Suggestions When Appraising a Business

If a business appraises much lower than the discussed price and the seller won’t budge, it is up to you to consider the possible pitfalls and advantages of buying a business that isn’t worth what you paid for it – at least initially.

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