Key Takeaways
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An appraisal gives a market-based opinion of a likely sale price. A formal valuation assesses value for a defined legal, tax or financial purpose.
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Brokers usually prepare appraisals. Formal valuations are prepared by qualified valuers or appropriately accredited accountants.
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Appraisals suit owners planning or testing a sale. Formal valuations are more likely to be needed for buyouts, family law, disputes, lending and tax matters.
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Ask a valuer for a written quote, because the scope, fee and timing depend on the purpose of the report.
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The two can work together, with a valuation providing an independent figure and an appraisal showing what buyers may pay.
A business appraisal and a formal valuation are different documents prepared for different purposes. An appraisal is a broker’s market-based opinion of the price a business is likely to achieve. A formal valuation is an independent, documented assessment prepared by a qualified professional for a defined purpose.
The right choice depends on who will rely on the figure. Where a legal, tax or financial matter is involved, your accountant or solicitor can confirm which you need.
What a Business Appraisal Is
An appraisal is a market opinion. A broker reviews the recent financial records, normalises the earnings and considers comparable sales, buyer demand and the risks in the business. A free business appraisal is often the first step for owners considering a sale.
The result is a likely price or range, not a certified figure. It considers factors such as the lease, staff, owner involvement and the condition of plant and equipment.
There is no single formula, so different brokers may reach different figures. Ask which comparable sales and assumptions support any figure you are given.
What a Formal Valuation Is
A formal valuation is an independent written report prepared by a qualified business valuer, an accountant with relevant valuation accreditation or another appropriately qualified professional. It applies recognised methods, such as capitalisation of maintainable earnings, discounted cash flow, asset-based approaches or market comparisons.
The valuer examines the trading history and the factors behind it, such as margins, wages, occupancy costs, stock, employee entitlements and working capital. The scope also depends on what is being valued, such as a whole business or a minority interest.
The report is prepared so that parties such as courts, lenders or the Australian Taxation Office (ATO) can assess the basis of the figure. You are paying for independence and a documented methodology.
How They Differ
An appraisal addresses what the business could sell for in the current market. A valuation addresses what it is worth for a specific purpose, applying a stated methodology at a particular date.
The first reflects buyer demand and comparable sales. The second must withstand review by parties whose interests may differ from yours.
When an Appraisal May Be Enough
If your goal is to sell, an appraisal is usually the working document. It can help you:
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Test the market before committing to a sale.
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Set an asking price for a confidential or off-market campaign.
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Compare selling with holding or expanding the business.
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Identify changes that may improve saleability before listing.
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Plan the timing of a future exit.
Ask how any appraisal figure was reached. A figure that is not supported by comparable sales and verified earnings may need to be corrected once the business is marketed.
When a Formal Valuation May Be Needed
A formal valuation is more likely to be needed where the figure must be independent and able to withstand scrutiny. Common situations include:
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Partner or shareholder buyouts.
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Family law settlements involving a business.
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Litigation, shareholder disputes and insurance claims.
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Tax matters, such as capital gains events, restructures and transfers between related entities, where the ATO’s valuation guidance explains how market value should be supported.
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Lending and refinancing, where a lender asks for a documented figure.
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Estate and succession planning.
The exact requirement depends on the agreement, court, lender or tax rule involved. Your accountant or solicitor can confirm whether an appraisal would be accepted.
Cost and Timing
Brokers may provide appraisals as part of pre-sale discussions. Formal valuations are paid professional engagements, and their cost and timing depend on the purpose, the records available, the complexity of the business and the report required. Ask for a written quote and timetable for the specific engagement.
How They Work Together
An appraisal and a valuation can be used together. In a partner buyout, a formal valuation can provide the figure the parties rely on, while an appraisal can show what the business might achieve on the open market. A difference between the two can inform whether to proceed with a buyout or sell.
An owner who already holds a valuation for tax or finance purposes may also ask a broker how it compares with current buyer demand before listing. Neither figure should be assumed to replace the other.
Information to Prepare
Both processes usually start with:
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Profit and loss statements and balance sheets for recent financial years, plus year-to-date figures.
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A schedule of earnings adjustments, with supporting records.
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The current lease, including remaining term, options and rent review terms.
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A plant and equipment list showing what is owned, leased or under finance.
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Staff details, including roles, employment type and accrued entitlements.
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Licences, permits and franchise agreements, where relevant.
A valuer may request more, such as ledgers, stock records and forecasts. Requirements vary by provider and purpose.
Choose the Right Report
Start with the purpose. If you are testing a sale, begin with an appraisal. If a court, lender, partner or the ATO will rely on the figure, ask your adviser whether a formal valuation is required.
If a sale is on your horizon, Bond Business Brokers can prepare a market appraisal and explain the evidence behind it.
Common Questions
Can a business broker provide a formal valuation?
Only where the broker also holds recognised valuation qualifications and is engaged for that purpose. For a figure a court, lender or the ATO will rely on, a qualified valuer or accredited accountant is usually engaged.
Can an online valuation calculator replace an appraisal?
Not reliably. Calculators usually apply a broad multiple to the figures entered and cannot assess your earnings adjustments, lease or owner dependence. Treat any result as a rough starting point only.
How long does a formal valuation remain current?
A valuation states value at a specific date. Changes in earnings, staff, the lease or market conditions can make an older report unreliable, and whoever relies on it may ask for an update.
This article provides general information only. Obtain advice from appropriately qualified advisers about your circumstances before entering into a transaction or relying on tax, legal or regulatory information.