The broker and business owner have the joint goal of finding the highest bidder. The valuation analyst has the goal of providing the business owner with an objective conclusion of value for widely different purposes. During the life of a business, a business owner may have the need of the services of both the business broker and the valuation analyst. In so doing, the business owner obtains access to an appropriate blend of objectivity and reality.
Filler & Associates have experience and knowledge about both brokers and valuation analysts, and have highlighted some important differences between the two:
Small business owners and entrepreneurs look to business brokers for assistance in the valuation and sale of their business. The broker advises and represents the seller in their common goal to locate a buyer. They quickly become a team, sharing their ideas and experiences to find a deal they can accept. The broker uses their specific knowledge of the industry to focus efforts and create time efficiencies. These efficiencies include: establishing a listing price, determining information to be disclosed, defining buyer geographic scope, qualifying potential buyers, and establishing financial terms. The broker begins the search with the focus and motivation to find a buyer and negotiate a deal.
The deal is important to the broker as it triggers his or her compensation calculation. The broker makes a living closing deals. In fact, he or she was probably chosen based on the broker’s success ratio at closing deals. The commission paid the broker is a good thing. It was the primary factor in 1) the seller and broker coming together, and 2) the seller and buyer coming together. The broker desires to earn his or her commission in the most efficient manner possible. Quick identification of qualified buyers is the efficiency most sought by the business broker. Without a qualified buyer, there will be no acceptable deal.
Business owners look to the business valuation analyst for an objective conclusion of value. The valuation analyst gathers relevant industry and company specific data from the business. The valuation analyst will focus their efforts like the broker, but not at the sacrifice of limiting relevant information. For instance, the valuation analyst may take a broader geographic approach than the broker who limits geographic efforts for time and cost efficiencies. Remember, the broker is seeking the deal and the valuation analyst is seeking a conclusion of value. The efficiencies sought by the broker may be viewed as an unacceptable limitation by the valuation analyst.
A valuation analyst’s fee is generally determined by the time spent to complete the valuation engagement and generate a valuation report. An important fact to note is that the fee is not determined by the conclusion of value or by the identification of a qualified buyer in a certain number of days. The fee is for the objective presentation of a conclusion of value in a report format consistent with certain professional standards. In so doing, the valuation analyst provides the business owner with an objective report telling the owner what they need to hear about the business value, rather than what the owner might want to hear.