ELEMENTS OF BUSINESS APPRAISAL
Every Appraisal method and technique must comply with and is limited to the following elements if the final results are to be considered significant.
What a reasonable buyer will pay a reasonable seller.
The term “reasonable” in this context is used in the economic sense. The buyer
and seller are each assumed to be comparing alternative investments and when
the economic incentive to purchase is equal to the economic incentive to sell, a
deal is made.
For Appraisal purposes, a Business is defined as an organized method of
producing revenues routinely over a period of time.
The value of a Business is divided into two (2) components:
1. The asset value represents the value of machinery, equipment, buildings and
land, usable stock and other legal rights.
2. The intangible Business value of a Business represents the premium value a
buyer will pay the seller for organization and historically recorded cash flows.
Additionally, the intangible value may be broken up into various values
representing items such as, customer list, covenant not to compete, goodwill and
any other item documented by seller or buyer CPA.
Accuracy depends up the standard use of terms, methods, and disclosure of
The Business Appraisal report is only as good as the data it is based upon.
The report makes adjustments for minor mistakes in judgment or interpretation
of questions; however, accounting or financial data is taken at face value.
All estimated values are limited by time and adjustments may be made as
changes occur over time.
Any sales price is subject to change as the market conditions change. Therefore,
the suggested value-
of a given Business, in a given industry, and in a given market. Documentation of
the data used in the report will provide the basis for analyzing how this data will
change over time.