Most owners are sold the expensive version of something they don't need yet.
Two different things get called a “business valuation,” and they aren't interchangeable. One is a planning estimate. The other is a formal appraisal prepared to a professional standard. Knowing which your situation calls for can save you a few thousand dollars — or keep you from filing with a number that won't hold up.
Indication of Value
A planning estimate
Certified Appraisal
A formal, defensible opinion
An indication of value is not a certified appraisal, and the two are not substitutes. The skill is knowing which one your situation actually requires.
What is the valuation actually for?
An indication of value is exactly right.
For planning or curiosity, an estimate answers the question. Don't pay for a formal appraisal to satisfy either one.
Start with an indication of value.
For setting expectations and preparing the business, an estimate is the right tool. The price gets set by the buyer and the market — an appraisal doesn't change that.
It depends on your agreement — check it first.
If your buy-sell names a valuation method or a certified appraiser, follow it. If it's silent, an indication of value can anchor a fair negotiation between partners.
You'll likely need a certified appraisal.
Contested matters generally call for a credentialed appraiser whose opinion can stand up in court. An estimate orients you, but it won't carry the weight.
You'll need a certified appraisal.
The IRS generally expects a qualified appraisal for gift- and estate-tax filings. An estimate is useful for planning the move — not for making the filing.
You need a certified appraisal.
Anything that may be challenged needs a signed, defensible opinion from a credentialed appraiser. This is not the place for an estimate.
Check the lender's requirement before you pay for anything.
Lenders set their own rules, and many SBA acquisition loans require an independent business appraisal. Find out what your lender accepts before you commission the wrong document.
Notice how often the answer is the cheaper one. That isn't modesty. It's not selling you something you don't need.
Common questions
Yes — that's exactly what it's for. It sets your expectations and anchors the conversation. The buyer's offer, your counter, and the final price are negotiated on top of it. You don't need a certified appraisal to sell a business.
Because the IRS sets the standard, not you. Gift- and estate-tax filings generally call for a qualified appraisal, and an estimate won't meet the requirement. Filing with the wrong document is the kind of mistake that surfaces years later, at the worst possible time.
Usually not. An indication of value tells you whether the formal work is even worth commissioning — whether the numbers are in the range you expected, whether now is the right time. Spend the larger sum once you know it's the right move.
Not sure which you need? That's a five-minute conversation, and it's the kind of thing I'll tell you straight.