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Why You Shouldn’t Pay For A Valuation When Selling Your Business

Why You Shouldn’t Pay For A Valuation When Selling Your Business

If you are thinking of selling your business, the first thing you will likely ask is, “What’s my business even worth?” To figure out the answer to this question, the best place to go is to a reputable business broker, who can give you their opinion of value. In other words, what the most likely selling price would be if it was sold on the open market. A quality business broker should not charge upfront for a valuation, as long as you do genuinely intend to list your business with them when you are ready to do so. 

Find Out What Your Business Is Worth

If your goal is to list your business for sale, then your first call should be to the business broker that you want to use. Definitely do your homework first. Look at their reviews and customer testimonials, see what kind of web presence they have, check out their social media, what type of marketing are they doing for the listings they have? If you are impressed by all of that, then engage with the broker to make sure they are the right choice for you. 

A business broker who truly wants to earn your business should include a free valuation as part of their listing process. There are many business brokers in the industry who charge in advance for their valuations, probably due to people taking advantage of their free valuations, but in our opinion, if we are going to list a seller’s business, a valuation should be included as part of the commission that we earn. There are many different views on this within the business brokerage industry, but we believe that prospective sellers, who plan to list with us, should not be paying for this in advance. 

Your business broker will need the last three years of corporate tax returns, a year to date profit and loss statement, an estimated market value of any equipment, as well as the amount of inventory that is likely to be included at the time of sale. They will need to have one or two conversations with you about your expenses, and then they should be able to give you their opinion of market value. 

If You Want To Sell, Don’t Pay Your CPA To Value Your Business

Several business owners who have come to us to list their businesses have told us that they had previously paid thousands of dollars for their CPA to value their business for them. In one case, our seller paid $10,000. Unfortunately, that was money down the drain, because while CPAs are experts in all tax matters, when it comes to determining what a business is actually worth on the open market, a business broker is the best professional to consult to get that number. For example, we have access to all of the comparable sales that will determine the industry multiple for the business. Furthermore, we make sure to recast the financials to add back non-essential business expenses to the bottom line. These are main factors that help determine the market value of a business, and a CPA normally won’t take those things into account. Usually they use valuation methods utilized by big companies in mergers and acquisitions, and things work much differently when we are working to value small to mid-size businesses. 

When To Pay a Business Broker For A Valuation

Business brokers take on all the risk, because normally they don’t get paid for the hours and hours of work they do for you until your business sale actually closes. So, if you have no intention to sell your business anytime soon, or you don’t plan on utilizing the broker’s service to sell your business, then be honest and upfront about that. A business broker can absolutely still do a valuation for you, but for a fee, just like any other professional would charge for their services. Usually the cost ranges from $2,000-$5,000 for a valuation from a business broker. 

If you have questions about what your business might be worth, we are happy to have a confidential conversation with you to see how we can help with valuing your company. Please give us a call at (800) 648-2620 or send us an email at Info@GreenAndCo.biz today!