Baton was born on the principle that business valuation data should be a public good. We believe publicly available valuation data benefits both business buyers and sellers, especially if sellers can track their valuation over time – even years before they are considering selling.

That being said, not all valuations are created equal and the cost of business valuations, however, can vary widely. A valid appraisal will give you an accurate depiction of how much you’ll be able to sell your business for,  make your business much more attractive to prospective buyers, and give you valuable insight into how to increase the value of your business.

Below, we'll discuss what a business valuation is, what it involves, why it's important, and how much it may cost to get one.

What is a business valuation (business appraisal)?

A business valuation (synonymous with "business appraisal") has been defined as "a general process of determining the economic value of a whole business or company unit. [It] can be used to determine the fair value of a business for a variety of reasons." Put in even simpler terms, a "business valuation is a set of methods to determine how much your business is worth."

Why are business valuations important?

An accurate valuation is important anytime a business is being sold. The buyer and seller both need to have a fairly accurate understanding of the business's true value in order to arrive at a mutually acceptable price for the transaction. Business valuations can streamline the buying/selling process, and prevent misunderstandings and "bad blood" between the two parties. Additionally, understanding your business’s valuation and the factors that contribute to it can help you better prepare for the future by providing insights on how to increase the value and help you identify the best time to sell.

How much does it cost to get a valuation?

As you can imagine, the cost of a valuation fee can vary greatly — from completely free (with certain businesses like Baton) to $25,000 or more. One of the biggest factors in determining business valuation cost is whether the appraisal is certified or uncertified.

What are certified valuations?

As you may have already guessed, a certified business valuation is performed by a certified (or credentialed) business appraiser. The appraiser's credentials may come from a handful of different organizations, and will include at least one of these certifications:

• Accredited Senior Appraiser (ASA)

• Certified Valuation Analyst (CVA)

• Certified Business Appraiser (CBA)

• Accredited in Business Valuation (ABV)

In some cases, you may be required to get a certified business valuation. For example, if your business is under investigation by the IRS, or if you're currently involved in civil or criminal litigation, then a certified appraisal may be mandated by the court in question.

The average entry-level cost of a certified valuation is about $5,000, with fees going up to $30,000 or more, depending on factors like the size of your company, the complexity of the appraisal, etc.

What are uncertified valuations?

Uncertified valuations are typically more appropriate for small business owners who are considering whether to sell. An uncertified valuation, while not as stringently regulated as its certified counterpart, is still helpful in understanding how much your business is worth, and the factors that improve it. It will give you a leg up on your competitors. Additionally, if you work with Baton, you’ll receive valuable benchmarks on where your business stands relative to local competition.

For many uncertified valuations, you can expect to pay somewhere in the range of $2,500-5,000. However, there are options to get a free uncertified valuation as well. For instance, some business brokers offer free valuation services to prospective clients as a way to "sweeten the pot" if they sign a contract with the brokerage or as a way to generate leads for their firm.

How much does it cost to value a business with Baton?

It is 100% free to value your business with Baton. We offer free valuations to all small business owners who want to understand how much their business is actually worth. Our appraisals are always data-backed and come with personalized advice on how to maximize the value of your company. If you're looking for a comprehensive, yet accessible monthly "snapshot" of your business's current financial health that you can trust, check out Baton. You’ll also receive helpful benchmarks on profit margins, expenses, employee pay, and access to our vetted partner network.

What information is needed to perform a business valuation?

The number of documents, and indeed the sheer amount of information necessary to perform an accurate business valuation, will depend on several important factors (the size of your business, its scope, how long it's been in existence, and so on). In terms of the documentation, you'll need to provide:

• Financial statements for at least the past 5 years

• Income statements

• Balance sheets

• Documents relating to intellectual property (trademark licenses, proofs of patent, copyright ownership, etc.)

• Documents relating to other intangible assets (franchises, goodwill, etc.)

• Organizational charts, product/service lists

• Customer lists

• Supplier lists

• Lists of competitors and comparable companies

• Other documents relating to financial reporting and forecasting

As you can see, there's a lot of information that must be compiled, categorized, and analyzed in order to achieve an accurate business valuation.

At Baton, all we need is ten minutes and your most up-to-date financial records to provide an initial valuation. You’ll authorize a secure and confidential connection directly to your accounting software to make this a reality.

What goes into a business valuation?

Apart from the "cut-and-dried" financial documents that need to be processed, an effective valuation will also include a range of other considerations. Financial reporting by itself can only tell part of the story.

For instance, an appraiser may (and, at Baton, we believe should) look at the current state of your local market, especially in terms of how prospective buyers would value your business in the real world. As one simple example, think about two insurance companies — one with a consumer base in a flood hazard area, and one with its consumer base in an area with very few natural disasters on record. Everything else being equal, which company would hold the greater value for a prospective buyer?

A business appraisal often delves beneath the financial data on the surface. Only by looking at a business from many different angles can an appraiser come to a well-rounded valuation that's both accurate and fair.

A valuation should also take into account factors about the business like key person risk, customer concentration, ability to grow, and more.

Can a business have more than one value?

There are many different valuation methodologies that can be used on their own or in conjunction. Why use different methods? An appraiser may use different methodologies based on the industry, business size, growth rates, business characteristics, and the like. Three broad approaches may include:

The income approach

In this methodology, the appraiser will value the business based on a relatively straightforward cost-benefit analysis. For example, what are the benefits of owning the business (profits, increased value, etc.) versus the costs (required capital, ownership risk, and so forth)?

The asset approach

The company's balance sheet accounts are the focus of this approach. The appraiser will look at the business' assets and liabilities, adjust them to fair market value, and make a valuation on that basis.

The market approach

This approach is more externally-facing than the other two mentioned above. The appraiser will compare the business in question to similar companies in the same industry and market. The appraiser will also look at recent sales of similar companies, especially those of comparable size.

In our opinion, a best-in-class valuation process should take dozens of methodologies into account to produce an estimated value.

What is USPAP, and how does it relate to business valuation standards?

As with any industry, it's important for business valuation professionals to hold to a uniform set of standards when doing their work. Thus, reputable, qualified appraisers comply with the Uniform Standards of Professional Appraisal Practice (USPAP). The USPAP includes the generally recognized ethical and performance standards for professional appraisers in the United States.

Certified appraisers, whether or not they are accredited by the American Institute of Certified Public Accountants (AICPA), can demonstrate a strong justification for their findings by working within the guidelines set out by the USPAP.

How are business appraisals calculated?

Two of the most common starting points for appraising the value of a business are looking at annual sales or annual profits (aka "seller discretionary earnings") multiplied by a standardized rate within the industry. After that amount has been calculated, appraisers will add many other factors into the valuation formula, including:

• The company's niche

• Growth trends (internal and external)

• The age and reputation of the business

• Website traffic (if applicable)

• The company's operating model

The more relevant factors are considered, the more accurate the final valuation will be.

How long does a business appraisal take?

On average, business valuations take a couple of weeks to complete. More complex appraisals may take longer — perhaps up to six weeks in total.

On the other hand, it is possible to get much faster valuations for your business. With Baton, you can receive an accurate appraisal within 5-10 business days of submitting your assessment.

Is the date of a business valuation important?

In general, the specific date on which a business valuation falls is not that important. However, the more recent a valuation is, the more accurate it is. For instance, if you want to sell your business, buyers will not want to go by a business valuation that's five years old.

After getting your first valuation with Baton, we will continue to update your valuation every month so you’ll always have an understanding of how much your business is worth and how that value changes over time.

How long does a business appraisal take with Baton?

With Baton, you'll get a free estimate in just 5-10 business days.  All it takes is minutes of your time and you can get a valuation based on real data. When you’re ready to sell, we can provide you with all the support you need to back that valuation up and get what you deserve for your most important asset.