In a business appraisal, the low-end software-driven product should be approached with caution. In general these products are designed to give quick, and not necessarily accurate answers to price shoppers, and by design deny the client the expertise of the appraiser's many years of valuation wisdom. Often these are done by part-time appraisers, or are loss leaders intended to lure clients into more expensive consulting agreements. People should beware of any appraiser who is willing to render an opinion of value without a personal interview, and hands-on inspection of the company's financial and administrative records.
These kinds of less-than-comprehensive valuation efforts can be well suited for situations where a client needs a ballpark estimate of value, perhaps as a starting point for sales negotiations, or to achieve a better understanding of the value drivers in his company. Often this type of assignment is begun with a Value Study to identify the value drivers of the subject business entity, and followed-on with consulting over a period of time to prepare the business and the owner for subsequent sale.
The typical setting for this kind of appraisal is a Family Partnership formed to protect real property assets from estate taxation. Usually the partnership has no income distributions to the limited partners, and all of the profit is paid to the General Partner. The value of the entity is based on its assets, and the values of the real property assets are provided to us by the real estate appraiser. Our assignment is to estimate the value of small minority limited partnership holdings in the entity, and to assign marketability and minority discounts from the enterprise value, if applicable. These projects typically involve only a summary report. You also need to be aware that at some point the IRS may be looking at this. Maybe you want to use a firm with ex IRS people on staff?
This is the most common type of assignment, and calls for the application of a full complement of appraisal procedures. This is the type of engagement suitable for most kinds of litigation, including family law, partnership disputes, shareholder oppression litigation, forced buy-outs, business torts, contract disputes, etc. The chief reason that engagements for litigation cost more is because the analysis and reporting must be performed to a standard of thoroughness that will allow them to survive rigorous cross-examination by opposing counsel. This takes time and costs money, just as all of the other components of litigation. The appraisal is not the place to cut corners. You may want to use someone that has been an expert witness in the past. You may want to use someone that gets excellent results in court. Do not forget to discuss this very important fact.
The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.