Learn more about business valuations for Mergers & Acquisitions

All business appraisals, as with certified appraisals for any purpose, present a value opinion as of a specific date. However, for the purpose of selling or buying a business there are two challenges that must be addressed.

First, assuming a sale of the company’s assets as opposed to a sale of its stock, the selling will be the concluded value of the company assets the buyer intends to buy which will be different from the concluded fair market value of the business. That is, the selling price will include only the current assets the buyer intends to buy—typically the company’s inventory and sometimes its accounts receivable plus the estimated current fair market value of its fixed assets and the value of its intangible assets—i.e., its ‘goodwill.’ 

The amount of money the buyer gives the seller at close of escrow will be the selling price minus the company’s liabilities the buyer will assume. Such assumed liabilities typically include outstanding gift certificates, deposits, accrued employee vacation pay and so forth.   

The second challenge is that on the day the business is to close escrow the values of the current assets and current liabilities and sometimes some of its fixed asset values will be different from what they were on the date of the appraisal.  This means that what the business is worth, the actual correct selling price emanating from the appraisal and the amount of cash the buyer needs to give the seller changes on a daily basis.

Thus, a certified business appraisal needs to reflect what is known as ‘the deal structure’ as of the date of the appraisal and how to modify it to reflect the company’s different value and selling price on the date of the sale.

So, make sure that whoever you engage to provide a business appraisal pursuant to the sale of your business or the business you intend to buy incudes a detailed presentation of the deal structure.