Often, valuations are prepared by a member of the Appraisal Institute (MAI), using an industry-specific process, producing a formal business valuation or “appraisal”. In this instance, in order to ascertain a value, appraisers use a variety of data including: replacement costs, market data, and sales comparable data. Usually, the certified appraiser acquires data directly from the business brokerage professionals within that specific market or industry specialty.
Business owners requiring an opinion of value, but who do not require a formal appraisal, can engage an experienced professional business broker. The broker completes what is known in as a Broker’s Opinion of Value (BOV). In today’s world of distressed sales, lenders will often seek both a formal business valuation and a BOV in order to best determine and understand current value. BOVs are usually favored for the purpose of determining a sales price.
When a broker performs a BOV, the broker gathers information regarding the business’s physical features and those of the surrounding area, and reviews the market for recent comparable data. They may also assess the market for similar businesses in the area that are for sale. In the case of a franchise resale, the broker would very likely use sales data from recent franchise resales within the same brand. The broker will also evaluate leases and property expenses. Market trends are also considered along with any of the businesses unique qualities.
Valuations are an important tool for any serious seller. It allows them to concretely determine the proper asking price in order to expedite a timely sale of their business.