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All Matters of Valuation

 Tri-State  Business​  Appraisal, LLC

Frequently Asked Questions


What is the difference between an appraisal and a valuation?
        They are the same.  These terms are used interchangeably.  An appraisal or a valuation is the act or process of determining the value of a business, business ownership interest, security, or intangible asset.

What is a Small Business? 
        The Small Business Administration defines a “small” business by various standards. These standards permit businesses to have as many as 500 employees in some SIC codes and sales revenue that exceeds $28 million in other codes.  Middle market companies are described by the private investment market as businesses that sold for a price between $5 million and $50 million. Small businesses are characterized as selling for prices less than $5 million. Small business owners operate their business to maximize after tax benefit. These owners have powers of control over the operation that cannot be attained in public company.


What is the value of my business? 
        Business value can vary and is dependent on the purpose of the valuation. Before a valuation is performed a business appraiser must understand the purpose for the appraisal.

What is Fair Market Value? 
        Revenue Ruling 59-60 issued by the Internal Revenue Service defines Fair Market Value and has long been used as a guide by business appraisers, even though the original purpose for the ruling was for estate and gift tax purposes. In this ruling Fair Market Value is defined as:  “…the price at which the property (interest in the company) would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.  …In addition, that the hypothetical buyer and seller are assumed to be able, as well as willing, to trade and to be well informed about the property and concerning the market for such property.”


Why should I have my business appraised? 
        There are many different reasons or purposes to value a business. Most business valuation projects involve the potential for dispute and are regularly reviewed by governmental regulatory agencies such as the IRS (e.g., for gift or estate tax purposes), and many times these reports are presented before a judicial court in a litigation setting. There can be consequences if an inappropriate value or a value intended for one purpose is used when it was meant for another application. When the value matters, have an appraisal performed by an independent, certified, business valuation professional.

Why not use a Rule of Thumb or multiples of publicly traded companies? 
        Generality stock multiples are only useful if the company being valued is very similar to the public companies it is being compared to in terms of all of the different factors that affect the value of the public company’s stock. Selecting an appropriate multiple requires an in-depth analysis of the company being values and how it correlates to the public market and if these factors apply to the company being valued. Rule of Thumb multiples may not apply at all.

What determines the cost of an appraisal? 
        The most important factors in determining the cost of an appraisal are the scope of the work required, the purpose of the appraisal, and the complexity of the business being valued. Total time to complete an appraisal can vary from a few hours to more than 100 hours. After discussions with you and your advisers we will provide either an estimate of time required or fixed price to prepare the report.

I am thinking about selling either part of or my entire business. Do I need an appraisal? 
        It depends on your need for an appraisal. If the appraisal report will be used as the basis for an offering document, it will help justify how the value was determined.

If I give my son or daughter stock in my company, do I need an appraisal? 
        If you are gifting part or all of your business to your children and a potential gift tax is involved, we recommend that an appraisal be performed.  If the Internal Revenue Service audits the gift, the tax payer has the burden of supporting the value of the property given. A well-documented and certified appraisal will show the IRS that the valuation was properly performed and help establish the gift’s value.

Can't I have my company's CPA appraise my business? 
        We have the utmost respect for the CPA profession. However, not all CPAs have the necessary expertise to value a business.  Find out if your CPA is accredited in business valuation by the American Institute of CPAs or any other appraisal organization. Additionally, there may be a conflict of interest if your CPA has a business interest in the subject of an appraisal.  This interest could be an issue if the appraisal is contested. At Tri-State Business Appraisal, LLC we work with our client's financial and legal advisers to gather the necessary information to perform the business valuation and depend upon their cooperation to complete our assignment.


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Tri-State Business Appraisal, LLC, 1554 Paoli Pike, #292, West Chester, PA 19380 USA
Phone: 1-610-955-9343