What Does a Business Appraisal Cost?

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The inscription VALUATION on the gear of the clock mechanism, 3d illustration

This is one of the most popular questions I am asked, both by clients and business valuation students.  The answer to this question invariably is the same as many other questions posed to me, “it depends.”

I thought that I would expound on some of the factors that I consider when quoting a fee for a business valuation assignment.  These are in no particular order

What is the purpose of the valuation?

An appraisal report prepared for a litigation or tax event will be written differently than if I were writing it for the owner of the business for internal planning purposes.

USPAP allows for two types of written reports, the Appraisal Report, and the Restricted Appraisal Report.  One takes longer to write, and I generally charge more for that one.  There are certain purposes, where I tell the client I will only write an appraisal report.  They don’t get a choice, unless they want to hire a different appraiser.

  1. Are the financial statements of good quality or will I be using tax returns or oftentimes even worse, QuickBooks reports from the in-house bookkeeper before the Company’s accountant has made their adjustments?
    • Tax returns are prepared in order to calculate tax liability, not to showcase smooth operations.  Some of those expenses are buried in very interesting places in certain tax returns.
    • The harder it is to figure out what the earnings of business have been, the harder it will be to determine what those future earnings will be.  I once appraised a business where the financial documents I was able to analyze consisted of a checkbook register.  That was a very interesting court case to testify in!
  2. Oh yeah, court testimony will be extra and will be billed and collected prior to appearing in court.
    • Expert testimony fees tend to increase the overall cost of a business appraisal assignment.  Not all clients know if their purpose will lead to court testimony, but I spell it out in my engagement agreements regardless, just in case.
  3. How fast does the client need my report?
    • I have been asked to complete a business appraisal for a trial scheduled the following Tuesday.  The call happened on Thursday.  In my experience, it takes the client at least a week to gather everything I need to see and then I have to have time to examine it all and to draw my conclusions.  My analysis often leads to follow-up questions that the client then takes time to answer. 
    • If I need to put other projects and my family and hobbies on hold in order to complete the project within a client’s very quick timeline, that fee will likely be impacted.
    • On the other hand, if the client has given me plenty of time to meet my other obligations, I will often charge less than I would for a normal engagement.
  4. What is the current status of my workload?
    • If I have three valuation assignments I need to finish in the next couple of weeks on my desk right now, I am less likely to want to add a fourth report at my normal fee schedule. 
    • Of course, if I am playing Solitaire on the computer when the client calls because I am between assignments, then I will often quote a lower fee.
  5. How does the client sound on the phone?
    • If I get the impression that the client will be difficult to work for, I will often charge a higher fee.  Some examples of things I have had happen to me are as follow:
      1. Dragging their feet with the requested information,
      2. Requesting multiple changes to the assignment, before I even have a chance to complete it,
      3. Changing my report’s due date mid-assignment,
      4. Changing my report’s effective date mid-assignment,
      5. Late to pay my retainer,
        1. I now tell clients that I will not begin until after I have received the retainer.
      6. Repeatedly asking if I can do the report for less than I quoted and then mentioning the reduced timeline at the end of the call, and
      7. The client tells me they will think about my quote and call me back later if they decide to use me.
        • Now I provide engagement agreements with an expiration date, so if I quote a project when I have lots of time, but I don’t actually get engaged until three months later when I am up to my eyeballs in work, I am able to increase my fee. I operate my appraisal practice out of my home, so I can get to work as early as I need and stay as late as I want to, and still be available for my family.  This flexibility also leads to some interesting fee questions, such as clients wanting to meet with me after I complete the report to review it with them.  I typically advise the client that I would be happy to meet with them, in their conference room, free of charge, but if I have to kick the wife and kids out of the house, I will have to charge them. The process to obtain a professional designation in business valuation involves a fair amount of study as well as training one’s mind to be able to think logically and to be able to communicate one’s thought process to the end-user.  This is a set of skills that are not necessarily intuitive, meaning that without correct education, it is easy to skip a few steps and arrive at unreasonable numbers in an analysis, but none of the above actually answers that first question I posed.  I have seen websites where free valuations are offered.  One simply inputs some data and outcomes an answer, just like a vending machine handing out free candy.  On the other end of the spectrum, I have met appraisers who regularly charge $10,000 or more for their analysis.  In my experience, most business appraisal projects’ costs land within the range of $1,500 to $8,000 or so.  However, as mentioned above, there are a variety of factors that can influence the price quoted.

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