What Does A Valuation Cost?
The cost of a business valuation will usually range from a low of $2,000 to a high of $30,000.
What determines whether a valuation will cost more or less? Critical determining factors are:
- Type of Engagement – What is the purpose of the valuation; will a valuation calculation suffice? Are the parties agreeable to one valuation person? Can a scope for the valuation engagement be set and agreed to by the parties? Is a valuation conclusion required that is documented by a comprehensive report?
- Industry of the business – Some businesses might have more comparable market information available.
- Size – This is usually measured in sales; larger businesses will require greater analysis.
- Age of the business – A business with a established track record will be easier to value.
- Volatility of both the business and the industry – Businesses and industries that have a higher amount of fluctuation will require a greater amount of analysis
- Condition of the records – If records are inadequate or difficult to follow, additional time will be
Generally a business will be valued based on income, market and asset approaches. Within these approaches, there are multiple methods. By knowing who the business will be sold to can drastically affect the value; If the business is to be sold to any hypothetical buyer or seller, the fair market value standard of value is used. However, if a known buyer (i.e. a competitor or business in a complimentary industry) wishes to acquire the business, the standard of value used would be investment. In these two examples, the value could be different.
Let’s use an example of a $5,000,000 sales company in the distribution business. Let’s further assume the company has a controller and outside CPA firm. Records are in good shape, the industry is fairly stable and they have been in business for twenty years. Normally valuation professionals will prepare what is known as an engagement letter. The letter outlines the topics above (reason for the valuation, standard of value and fee estimate). A sample engagement letter for an imaginary company is attached as a separate document.
Generally, the valuation fees for this company would range from $6,000 to $8,000. Again, it should be stressed that this fee does not fit all situations. The fee will be dependent on the variables listed above.