Business Valuations for Buyers
Importance of 3rd Party Valuation
In most business transfers, a business owner has pro-actively conducted a business valuation to ensure they are getting a fair, realistic price for their business. This is the smartest thing a business owner can do because it protects them, but also the transaction. What happens when a pro-active buyer approaches a business that for reason decides not to conduct a third party business valuation?
The buy-sell transaction can most certainly take place without a business appraisal and for that matter, without the assistance of a business broker, intermediary or investment banker.
In contrast, savvy buyers want to ensure they are acquiring a synergistic business that meets their personal and corporate objectives. If you are a buyer (individual, corporate, or investment) and are considering a business property where the value is in question, it is fiducially responsible to conduct an independent, third party business valuation. Requiring the seller to open up their financials and business operations to due diligence, in an effort to pinpoint a price range comprising of fair market value and strategic value, is a legitimate request. Should the seller resist, then there is something they are most likely seeking to hide; buyer beware!
Beyond due diligence, another reason buyer's should conduct a business valuation is to fulfill commercial lending requirements associated with banks and SBA loans. When an individual buyer seeks bank financing to purchase an existing business, some lenders will require a price and consequent loan justification, validated through a third party business appraisal. If real estate is involved, you can be assured an appraisal is required. In other instances, lenders may require a complete business valuation to justify loan proceeds.
The fees associated with this business valuation typically should be covered by the seller. When a buyer pro-actively requires that a valuation be conducted, then the fees should be paid by the buyer and then adjusted for in the final purchase price; either evenly split or credited in full by the seller. In theory, it is the seller's responsibility to know the value of their business in order to preserve fairness to all parties involved in a transaction.
To learn more about getting a business valuation for a business you may wish to purchase, please contact us today or call us at 877-VALU-BIZ.