How A Broker’s Opinion of Value Can Help When Selling a Business
If you want to sell your business, you need to know its value. Beyond that, you need to determine the right listing price. Value and listing price are correlated, but they’re rarely the same.
A broker’s opinion of value (BOV) is an analysis that helps determine the best listing price and suitable bid for a business. A BOV is sometimes called a Broker Price Opinion (BPO).
Why is a BOV important, and how does it compare to an appraisal? How can it help when selling your business?
Broker Opinion Of Value VS Appraisal
You might think the two terms are interchangeable, and it’s true that they have some similarities, but there are some key, noteworthy differences.
A BOV and an appraisal are both aimed at identifying the value or cost of your business. Appraisals are highly regulated, and they generally rely heavily on the numbers, financials, and market conditions.
Appraisals don’t typically consider other factors like valuable assets that set your business apart. For example, unique selling propositions such as highly skilled staff, manufacturing relationships, or streamlined processes, aren’t usually considered.
Alternatively, a BOV looks at market conditions, comparable companies, and considers your unique selling proposition. Business brokers use this information, along with their industry expertise, to find the highest value for which your business could list and sell.
Additionally, one of the most notable differences is the price. Appraisals require third parties who often charge very high fees. BOVs, on the other hand, are usually much cheaper for the business owner.
There’s value to both an appraisal and a BOV, and many businesses get both. However, they are different, and BOVs present a clear value for business owners because the goal is often to find the highest value the market will pay for their business.
A BOV has several other benefits, too.
5 Benefits Of A Broker’s Opinion of Value (BOV)
So, aside from the cost advantages, what are the benefits of getting a BOV?
1. Experience
Business brokers deal with selling businesses, and that’s their specialty. They’ve spent their careers understanding the hyper-specific art of buying and selling businesses. This expertise adds clear value to a business valuation.
Knowing what past buyers have paid gleans much greater insight than numbers alone. There’s a psychology to business sales, and brokers are tuned into that frequency.
When you get a BOV, you’re provided with a value based on cumulative years of knowledge, training, and hands-on work in the field.
2. Understanding The Macro Industry Trends
In economics, there’s micro and macro. Microeconomics focuses on an incredibly precise analysis of prices, costs, industry, quantities, and supply and demand as it pertains to one industry or firm.
Macroeconomics, on the other hand, focuses on the economy at large — what’s happening in the big picture. Macroeconomics dives into labor, trade, banking, and more.
A BOV identifies and applies macroeconomics in the valuation. Appraisals are generally focused on microeconomics. Why is this important?
The state of the economy dramatically affects every industry. This is blatantly evident in the COVID era. For instance, while you might not work in manufacturing, the effects of the pandemic on that sector have disrupted almost every industry to some degree.
In addition, the economic effects of COVID are tumultuous and constantly changing. The stock market is in turmoil as a result of the virus and its implications. Businesses everywhere are impacted by these fluctuations of the greater economy.
The same scenario could be seen during the mortgage crisis in 2008. Industries outside the mortgage sector were impacted dramatically. Banks and financial institutions laid off thousands of employees. People’s personal net worth was affected, which hurt their buying power and, in turn, decreased their ability to spend at other businesses.
Brokers are well-versed in macroeconomics and how it affects the price and worth of a business. This knowledge helps them create an accurate picture of a business’s value based on the economy at large. They apply microeconomics, too. Ultimately, a BOV leads to a complete, 360-degree view of your business’s value based on small and large economic factors.
3. Strong Financial Background
A broker has a strong financial background. This is critical because determining a business’s value relies on various formulas and a deep understanding of economic principles.
Many small business owners try to figure out their own value or go to a banker to try to assess their value. This can lead to an undervaluation or overvaluation, either of which can be disastrous.
When you get a BOV, you can trust that you’re getting a valuation from someone who has a firm grip on the financial ins and outs of running a business.
4. Additional Insights
An added benefit of a BOV is that brokers will often provide additional insights that a black-and-white financial statement would not.
For instance, BOVs often recommend various structuring scenarios and incorporate tax considerations. In other words, brokers often lay out different sales structures and potential strategies that could result in different valuations.
BOVs often provide a more colorful rubric for business pricing. For example, while on paper, your business might be worth $100k, with a restructuring of assets, it could be worth $200k.
Ultimately, BOVs can present numerous insights and methods for reaching your targeted asking price.
5. Investment
Generally, brokers provide BOVs for their clients or potential clients. It’s in the best interest of a broker to price your business as high as the market will tolerate.
This added benefit allows you to know that your valuation is based on the best-case scenario for you. You’ll get an accurate valuation based on your business and market trends, but you’ll also get a valuation that values your results.
There’s an inherent benefit to having someone who’s invested in the business calculate its value. However, unlike if you perform the valuation yourself, a broker brings added experience, insight, and background to ensure that the BOV is objective and based on what a buyer would pay.
Get A BOV To Help Sell Your Business
The value of a BOV is clear — especially in these uncertain economic times. Having a broker’s knowledge and industry expertise can help you determine the best price to list your business during the COVID era and beyond.
Here at Raincatcher, we’re enthusiastic about helping business owners sell their business for a fair price. Contact us today to see how we can help you with a BOV.
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