Determining your business's value: Broker's Opinion of Value or Certified Valuation Report?

As you prepare to exit or sell your business, one of the first and most important things you'll need to know is the value of your company.

The two most common ways to find the value of your business are with a Broker Opinion of Value (BOV) and a Certified Valuation Report. Determining which option is best for you will depend on your needs and the plans you have for your company.

Here's what you need to know about the differences between a BOV and a Certified Valuation Report.

What is a Broker's Opinion of Value?

A BOV is an estimate of a business's value determined by a licensed and experienced business broker. This valuation can be used to establish an asking price, aid in exit planning, or guide future business plans.

A business broker will determine a BOV by evaluating:

• Comparable sales data
• Location of the business
• Key financial data
• Market variables
• Industry expertise

Benefits of a BOV

There are numerous benefits to obtaining a Broker's Opinion of Value, including:

• Cost-effectiveness. These reports are less expensive than a Certified Valuation.
• An estimated value, which can be used to determine an asking or listing price.
• A quick turnaround on the report, as these reports are shorter and less time-intensive to prepare.

While a BOV can be helpful, it's important to note that it's not the same as a Certified Report.

What is a Certified Valuation Report?

A Certified Valuation Report is an in-depth and comprehensive evaluation of your business prepared by an accredited firm or appraiser. These reports are completed by a Certified Valuation Analyst (CVA) with credentials from a valuation association, such as the National Association of Certified Valuation Analysts (NACVA).

A typical Certified Valuation contains the following information:

• Executive Summary: A brief overview of the report and its findings.
• Description of property: A detailed look at the business's physical location.
• Market Analysis: An explanation of the current market trends and similar business sales in the same market.
• Valuation Methods used: A description of the methods used to find the valuation, whether that be a Market-based, Income-based, or Asset-based methodology.
• Data overview: A summary of the data used to complete the evaluation, including financial and economic information.
• Conclusion of Value: A final estimate of the property's value, often reported as a range rather than a single number.

Benefits of a Certified Valuation

The benefits of obtaining a Certified Valuation Report include:

• The credibility of the report since it's drafted by a Certified Valuation Analyst.
• A description of how the valuation was determined, which gives potential buyers and sellers confidence in the findings.
• A document that is validated enough to be used during legal disputes, estate planning, and when drafting buy-sell agreements.

In short, a certified valuation report provides a credible assessment of the value of a property, which can help individuals and organizations make informed decisions, manage risk, and resolve disputes.

Broker Opinion of Value vs. a Certified Valuation: What's the difference?

Often, a BOV is confused with a Certified Valuation. However, these reports are not created equal and involve different requirements and certifications.

A Broker Opinion of Value:

• Is less formal than a certified valuation.
• Includes a smaller compilation of reports for business owners to review.
• Costs less than a Certified Valuation because it's less time-consuming to create and less formal in nature.
• Does not always carry weight with legal proceedings because it's based on the opinion of the broker who conducted the valuation.

A Certified Valuation:

• Includes more in-depth reporting.
• Will cost more than a Broker Opinion of Value because it's structured more formally and is more time-consuming to create.
• Can be used in court during legal proceedings such as partnership disputes and buy-sell agreements because of the credibility of its certification.

Need help?

Choosing between a Broker Opinion of Value and a Certified Valuation Report will depend on your need for the valuation, as well as your goals and the plans you have for the future of your business. Contact us today to help you determine which report is best for you.

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