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How to Read a Business Appraisal Report

December 3, 2019
By Shawn Hyde, International Society of Business Appraisers (ISBA) –

If you have ever seen a business appraisal report, you by no means have seen them all. There are almost as many different styles and types of reports as there are business appraisers. Fortunately, each report should have a few things in common that a reader can lock onto and use to decipher what the rest of the report means. I want to share a few of these and some tips I have come up with over the years for reading valuation reports.

Things to look for –

1. Not all business appraisers follow, or are required to follow, the Uniform Standards of Professional Appraisal Practice (USPAP), but most of them will still put a page somewhere in the report where they state their concluded value. Usually, they will also state what exactly it was that was appraised. Do not assume that the appraiser appraised what you thought was appraised. Many times, I have been asked to appraise a business, and when I asked for more information on what exactly the client was looking for, I had to educate the client on the possibilities.

I can appraise an ownership interest in the entity that owns the business assets, or I can appraise only the assets that would normally transfer in a sale.

In the first option, I can appraise a 100% ownership interest in the equity or in the invested capital. Equity means just what it means elsewhere — assets minus liabilities equals equity. Invested capital means I am providing the value regardless of how the operations were financed. Each option will come up with a different number and both will be correct. (more…)