Tina: Why does it cost so much to have my business appraised? Why does it take so long? What are the benefits of having my business appraised?
Michael: The expertise required to perform a business appraisal credibly takes years to acquire, and thus it is expensive to hire, train and retain staff with the skills, expertise and intelligence necessary to carry out the engagements. Our practice, as is the case with most strong practices, also invests heavily in ongoing professional education, as well as tens of thousands of dollars each year for proprietary data sources. In that context, I would argue that a business appraisal isn’t all that expensive. Just gaining access to the data that we use would likely cost the client as much as or more than the appraisal.
The expense also involves the time required to produce a credible appraisal in accordance with professional standards. Most of our engagements require 40-60 hours of professional time to execute, which involves collecting information, data entry, reviewing of documentation, interviews and (sometimes) site visits, independent research, analysis, report production, review , and quality control.
Ultimately, if a client thinks that a business appraisal is expensive, it means we haven’t successfully articulated the value that the engagement will bring to the client.
I do think our profession often takes too many liberties in terms of delivering work products to clients. Our practice does a great deal of transaction work, and you can’t take 4-6 weeks to perform an appraisal when there is a transaction being contemplated. As the saying goes, “time kills all deals,” and the business appraisal firm’s timetable mustn’t be the deal killer. That’s why one of our key performance indicators for our practice is time to delivery—we call it “engagement velocity.” We deliver our initial findings generally within 2-3 weeks of receipt of information from the client and have been much faster. For example, we recently completed an assignment in 3 days for a client with a very urgent need. We might well have saved his job. We were able to do that because we work hard on process, we have a great team that takes client goals personally, and we have a culture of urgency.
The key benefit of having your business appraised is business intelligence. An appraisal performed well should teach the client something (I would argue it should teach the client a lot) that he or she didn’t know at the start of the assignment. That education will enable you to secure a better deal, to recognize and accept a good deal, to avoid wasting time on deals that are non-starters, to manage a business dispute, to think in a factual way about building value in a business, and to manage a compliance process with minimal time and frustration. The educational component is particularly critical to sellers. Many buyers buy businesses for a living. They make 5-10 deals a year and perhaps have been in that business for 20 years. Most sellers sell their businesses once; they are at a tremendous experiential and informational disadvantage relative to the buyer and are taking a knife to a gunfight. An appraisal evens the playing field significantly.
The key benefit of having your business appraised is business intelligence.