Asset Appraisals May be Needed to Support a Business Valuation

/in , /by Jim Leonhard

I recently valued a number businesses that required the appraisal of certain tangible assets, such as real estate and equipment – in one case its was an extensive library of manuals and maintenance specifications for a service business.  At what point do we look for a appraisal specialist with particular expertise to value such assets?  

The simple answer is, it depends on materiality.  If it is clear that the business enterprise value is well above the net tangible asset value, as evidenced by the market and/or income valuation methods, we may be able to rely upon the owner’s estimates or rough calculations of the market value of tangible assets. The answer can also depend on the intended use and intended users of the business valuation.
When the asset(s) in question have very significant value  that will impact the market and/or income approaches to value, or if one of the asset approach methodologies, such as net book value or liquidation value will be relied upon, we will request that a client obtain a third party appraisal of the asset(s) in question that we can incorporate into our business valuation.
Typical  Situations Where Asset Appraisals are Recommended
  • Real Estate Appraisals
    • the business owns real estate, e.g. for agricultural enterprises or a real estate partnerships
    • the business leases real estate from a related party and we need to ensure the business is paying market rent
  • Equipment appraisals
    • the business is capital intensive
    • it has a large amount of used equipment – making rough value calculations unreliable
  • Unique assets
    • the business has a significant amount of unusual assets that are not common to most organizations
  • Non-operating assets
    • non-operating assets are items that can be removed from the business without affecting business operations, e.g. an airplane owned by a construction business, or a vacation home
For more information about how asset appraisals are used in business valuations, please contact Jim Leonhard, CVA, at 916-800-2716 or jhleonhard@exitstrategiesgroup.com.