Why business appraisals differ

You may wonder: if professional business appraisals follow standards, such as the USPAP (Uniform Standards of Professional Appraisal Practice), why do the results often differ so much? The reality is that behind every business valuation is a client who expects a certain result.

Business appraisals are done for a reason. Take, for example, the typical business acquisition situation. The business seller wants a higher selling price, business buyer is more interested in the lowest business value possible. The same goes for buy-sell agreements between business partners, or legal disputes such as divorce.

True, it is possible to get a neutral business valuation by a court appointed appraiser, who is not associated with either party. But aside from court ordered situations, rarely do parties to an appraisal agree on the same number.

You are far more likely to run across a business appraisal in situations where parties are in the midst of a heated negotiation, each pushing its own point of view. Business owners seek to minimize taxes, the tax authorities look to collect all the taxes due, lenders want the lowest supportable business valuation, borrowers want to borrow as much money as they need, at the lowest cost. All these players use business valuation to support their position and don’t give much thought to the theoretical fair market value figure.

In a sense, business appraisers act as their clients’ advocates to help them justify their position while providing a supportable estimate of business value. Being unbiased in this situation is difficult, but your business appraiser should be able to maintain an objective attitude.

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