Small businesses have many fixed expenses associated with running the day-to-day operation. If that isn’t enough, there are always “one-off” costs that may be foreseen or unplanned during the year that the company needs to account for. Fees for business or equipment appraisals will fall into the latter category; however, when those costs are compared with the benefits you gain with an updated valuation, you should not hesitate to pull the trigger.
Generally speaking, appraisal services are designed to assist in facilitating the closing of a larger business transaction or are utilized in the settlement of a dispute. Here are a few specific examples:
Bank Financing and Leasing
The traditional process of working with banks, leasing companies, and similar financial institutions will require a review of your company’s assets to collateralize and secure a loan or lease.
Private Equity Investment
A secondary source of capital for your business in the form of private investment will allow your business to expand its resources and promote growth.
Buying and Selling
If you’re considering buying or selling a business, you will want to consider an appraisal to confirm your assumptions about the value of the underlying assets. Successfully negotiating a sale is the goal and having a third-party valuation will assist in the process.
Similar to a personal divorce, partners may eventually fall out of favor with one another, and separation becomes inevitable. An updated business valuation will bring more clarity to the negotiation of a fair buyout settlement.
The residual benefits of an appraisal include the use of the report for accounting, tax, and insurance purposes. A recent valuation may come in handy for a variety of reasons. Just ensure the original purpose of the report does not conflict with any future use as appraisals are generally designed for specific situations and may need to be amended if used for something different.