Top 10 reasons to get a professional business appraisal?

By Simon Palmer

Many people feel that the only time to get a professional business appraisal done for a business is when you are about to buy or sell that business.

While this is definitely a reason why many people come to use appraisal services, there are actually many, many ways that business valuations are needed by business owners at different stages of their career. In no particular order, here are the top 10 reasons why people request an independent appraisal to be done on a business:

Reasons 1 and 2:

To establish a price when buying (1) or selling (2) a practice

Perhaps the most obvious reasons to get a professional business valuation is when you are buying or selling a business. Some buyers and sellers will try to create their own appraisal based upon:

• Their understanding of articles they read online about valuation techniques;

• A formula someone told them; or

• What an industry friend said they received for what sounds like a similar practice (buyers and sellers are often unreliable narrators of their own transactions and the metrics of the practice).

It’s important to understand that a valuation that has been put together by a buyer or seller has the perception of being inherently biased and compromised. A vendor will naturally want a high price and a purchaser a low one.

Getting a professional appraisal done...

• Allows a level of objectivity in the appraisal, as it’s done by an independent industry professional who has hopefully completed many such appraisals;

• Means that the valuation is based upon known comparatives; and

• Gives the buyer and their bank a structured approach to how the value was arrived at.

Reason 3: For succession planning/internal divestment

If your exit plan involves an internal sale to an employee within the practice, the price will often be set via an independent business appraisal.

Internal sales may be planned for years in advance and getting an appraisal done early can help all parties understand the size of the pending transaction better and prepare for it.

Reason 4: To plan for retirement

Many people are relying upon the sale of their dental practice to help fund their retirement.

If you’re in this category, getting a sense of what your practice is worth should help you get a sense of when you can afford to retire and what lifestyle you can look forward to post sale.

Reason 5: To exit plan

Getting an appraisal several years in advance of selling allows the seller to identify value builders and detractors that affect the price achievable for a business, if it were to be listed for sale and do some course correction if needed to get a better result.

Reason 8: For insurance reasons

Business owners will sometimes pursue an appraisal to determine the value of their business for insurance purposes. In this case, knowing the value of the business will ensure that there is sufficient cover to continue operating the business, sell it, or provide for the vendor’s family if something were to happen to them.

Reasons 9 and 10: For partnership buy-outs (9) or divorce (10)

Partnerships don’t always work out. If one part-owner of a practice decides they want/need to sell before the other/s, a business valuation may be required to arrive at a fair settlement of ownership interest.

Reason 6: To business plan

Even if you don’t plan on selling, getting a regular valuation is a great way to measure business improvement and create a strategic roadmap to create value going forward and shape the future growth of the company.

Reason 7: In order to fund other purchases

If you’re looking to borrow money, you may need to secure the loan against your current assets - and if this is the case, your financier may require that an appraisal be done.

If a business owner is going through a divorce, an appraisal is usually needed for an equitable division of family assets.

About the authors

Simon Palmer is the Founder and Managing Director of Practice Sale Search, Australia’s largest dental practice brokerage. If you’d like more information on practice sales or want to have a confidential discussion about your practice’s circumstances, email Simon Palmer at info@practicesalesearch.com.au or call 1300-282-042.