All About Business Valuation Cost (Short Answer)
After pouring your heart and soul into your business for years, the time to exit is finally here! But before you proceed, you'll need to understand the business’s value and how much the valuation will cost you.
Understanding the cost of a business valuation isn't just about the potential amount you need to pay — you'll also know why the charge matters and how it can affect how much you keep from the sale. There's even more you need to know!
In this business valuation cost guide, we'll discuss how much you can expect to pay to have your business valued, the factors that drive the cost, and what to consider before hiring a valuer.
Business Valuation Cost - Short Answer
You can expect to pay around $2,000 to $10,000 for a small business valuation, while a larger and more complex business can cost you up to $100,000 or more.
In some instances, you can have your business valued for free.
Business valuation costs depend on factors such as:
The expected turnaround time
Complexity of the valuation
Purpose of the valuation
Business size and complexity
Valuer’s experience and expertise
Your preparedness
We'll discuss the cost range and driving factors in detail in other sections. In the meantime, we at Exitwise recognize that finding the best valuer for your business can be difficult.
That’s why we can help you hire the right valuation experts, such as an M&A advisory firm, business appraiser, investment banker, or business broker.
Besides giving you a transparent valuation, these professionals can help you sell your business successfully at the highest sale price possible. Consult with our team today!
What is a Business Valuation?
A business valuation is a qualitative and quantitative analysis of a business to determine its worth.
Also called a company valuation, the process is completed by a third party on your behalf to maintain objectivity.
Purpose and Importance of Business Valuation
Business valuations are essential in the following ways:
Streamlining the Sale Process: Selling your business will be easier when you know its worth, how much buyers may be willing to pay, and the minimum you can accept. Negotiating the sale price with potential buyers can also be easier.
Strategic Planning and Decision-Making: Knowing your business's worth can help you plan to maximize its value by correcting your weaknesses.
Managing Your Expectations: There's often a disconnect between what a business is really worth and what you believe it's worth. A valuation helps you have a realistic understanding of fair market value and how much you can sell your business for.
Determine the Right Time to Sell: A right valuation can help you determine whether and when to sell your business, depending on its value and prevailing market conditions.
Factors that Influence Valuation Cost
As mentioned, business valuation service costs depend on various factors.
Here are some of the major factors:
1. The Expected Turnaround Time
Your timeline for the valuation is one of the most influential factors.
If you need a faster valuation, you'll have to pay more since the valuer will have to plan their workflow to accommodate the urgency while maintaining transparency, accuracy, and professionalism.
2. Complexity of the Valuation
One valuation can be more resource-intensive and rigorous than another, depending on the depth of financial analysis required, valuation method, and resources needed.
For example, a valuation requiring just one valuation method generally costs less than a complex one. The typical starting rate for an asset-based valuation is $5,000, while income-based valuations typically start at $10,000.
If the valuation calls for more than one method, the cost rises. The typical starting rate for such valuations is $10,000.
The cost may rise even higher if the valuer has to simulate different possibilities based on certain variables to give you worst-price, fair-price, and best-price scenarios.
3. Purpose of the Valuation
Most valuations are either for internal continuous assessment or pre-sale purposes. Generally, a valuation for internal purposes such as decision-making or value improvement costs less.
If you are looking to sell, the business value fees can be higher. You can also expect higher fees if the valuation is a legal requirement, such as by the IRS regarding tax issues.
4. Business Size and Complexity
Valuing a larger business is usually more expensive because it requires more time, labor, and other resources. A business with multiple departments and locations will cost more to value.
Your business’s industry also matters. According to NYU Stern, some industries are notoriously difficult to value, such as financial service firms and commodity businesses.
5. Valuer’s Experience and Expertise
A business appraiser with many years of experience and expertise typically charges more for business valuations than someone newer or just getting started.
For instance, certified valuers charge $5,000 to $30,000 and even more.
A specialized firm or individual offering only business valuations may also be costlier.
6. Your Preparedness
Your preparedness as a business owner has to do with how well you've put your financials in order before a valuation.
For example, it's important to regularly and accurately track your inventory, sales, and the cost of goods sold. You also want your financial statements ready for the last 3-5 years.
Suppose you use many business resources for personal needs. You'll need to account for these to reduce the time the valuer spends trying to determine your business's health and performance.
Ultimately, the more prepared you are with the documents, the less time the evaluator will need to collate them, possibly reducing some of the cost.
Looking for a quick estimate of your business’s worth? Check out our free online valuation calculator to get an idea of how much your business is worth.
Business Valuation Cost - Detailed Answer
We've mentioned that a business valuation can be free or cost $2,000 to $10,000 and even $100,000 or more. Most valuators charge this at a flat project rate or an hourly rate.
Here's a quick overview of the typical costs:
$2,000 to $10,000 for smaller, simple businesses.
$50,000 to $100,000 or more for larger businesses or corporations.
$10,000 to $50,000 for mid-sized businesses. For example, you may pay $15,000 to $30,000 for a business valuation with an annual revenue of $10M.
$5,000 to $30,000 or more when certified valuers do the valuation.
From $5,000 for asset-based valuations.
From $10,000 for income-based valuations and those requiring multiple valuation methods.
Free of charge valuations.
Free valuations are common when the valuer is uncertified or handling the process for a small business.
Most brokers also offer free valuation services to potential clients to sweeten the pot and increase the chances of signing the client. The hope is that they will successfully sell your business and earn a commission.
Key Considerations Before Hiring a Valuer for Your Business
You'll need to consider several aspects before you hire a business valuer.
Let's check out the main ones:
Nature, Complexity, and Preparedness of Your Business: A young business may be too difficult to value. Large or complex businesses usually have the same characteristics. You'll want to ensure your business is ready for a valuation, especially regarding the availability of financial information.
Valuation Purpose: If you only want a simple valuation, you can ask for a quick calculation engagement. If the plan is selling your business, you might want to hire a valuer who can also help you sell successfully much faster.
Valuer’s Specific Experience and Expertise: Check that the valuer has expertise and experience in your specific industry, business size, or company type. Choose one who's conversant with business sale valuations rather than legal valuations.
Cost: The ultimate plan is to take home the highest possible financial benefit from the valuation. As such, look for a cost-friendly valuer but one who balances time, transparency, and objectivity.
Hiring the best valuer isn't a walk in the park. You may be lost for options regarding the type of valuer your business needs.
When you work with us at Exitwise, we can help you interview professional valuers such as business brokers, investment bankers, business appraisers, and M&A firms.
We can help you hire and manage the best professional based on your business needs.
For example, if you plan on selling the business, it would be better to hire an M&A firm. You'll not only get help with the valuation but also throughout the entire sales process.
Schedule a chat with our team today to get started.
Frequently Asked Questions (FAQs)
Let's close the guide with a few questions you may have concerning business valuations:
What Are the Types of Business Valuation?
Business valuations can be placed in different categories, such as:
Asset-Based Valuations: Valuators can value a business as the difference between the fair market values of its assets and liabilities.
Income-Based Valuations: The discounted cash flow method is a popular income valuation that assigns a business value by discounting its forecasted future cash flows to their present value.
Market-Based Valuations: Valuers can gauge the value of your business by comparing it to similar businesses in your industry, looking at precedent transactions or public company valuations.
Preliminary Valuations: These are basic valuations typically based on profits. They are often verbal, simplistic, and unreliable in the long run.
Super Detailed Research Valuations: These are typically offered by industry, sector, or company-specific research firms to uncover and correct mispricing in large investor markets. The target businesses are typically worth more than $100M.
Legal Valuations: These are used to support legal proceedings, such as court cases where a business needs to be valued for divorce or tax reasons. The valuations are pretty costly because the valuer must be certified.
Certified vs. Uncertified Valuations: A certified valuation is done by a credentialed professional such as a Certified Public Accountant. Uncertified valuations may be done by a certified or uncertified valuer, usually for a smaller business looking to sell or for internal purposes.
What is the Cost of Business Valuation Report?
A business valuation report is usually free because the final physical or digital documentation shows the valuation results. Your valuer has to give you the analyzed results, and the cost is usually included in the valuation fee.
In most cases, the "business valuation report" refers to the entire valuation, and prices may be quoted with this in mind.
What Are the Components Included in Business Valuation?
You can expect the following components in a typical business valuation:
Financial review of the past or next 3-5 years, including cash flows, income statements, assets, liabilities, risks, and growth
Market and industry analysis
Valuation methods used and why
Operational review
Leadership and staff review
Final valuation report
Post-valuation discussions with stakeholders such as the business owner, legal team, management, shareholders, or auditors
Conclusion
If you’re valuing your business for sale, balancing business valuation costs with urgency and objectivity can help you maximize its value and achieve a successful sale with the best purchase price possible.
For this to happen, you'll need to hire the right valuation experts. At Exitwise, we can help you hire and manage experts who will help you with the valuation and make a successful sale.
Reach out to us today to find the best valuer and successfully sell your business.
