In my 15+ years of experience with startups, I have seen approximately 25% of them suffer a loss when they sell their beloved businesses. And that’s because they had no clue about the fair price.
A business valuation puts the right price tag. If you’re worried about the business valuation cost, don’t be!
I co-founded FreeUp, and within just four years, I scaled it to $12 million in ARR. When the time came to exit, I hired the best business valuator.
In this guide, I will share key information about business valuation prices, factors that affect them, and tips to reduce them.
The one thing I learned while managing FreeUp and four other businesses is that nothing beats automating and outsourcing tasks. I saved more than I spent. And the business scaled up in no time.
Schedule a call with me to learn how to automate your business, save money, and take your business to new heights.
TL;DR – How Much Does a Business Valuation Cost?
A business valuation cost varies from $0 to $100,000 depending on the size and complexity of the business, the urgency of the task, and other factors.
It ranges from $1,500-$10,000 for small, $1,500-$25,000 for medium, and $50,000-$100,000 or more for large businesses.
Some brokers do it for free.
How Does Business Valuation Work?
Business valuation begins with data collection of the company’s management, assets and liabilities, market value, capital structure, and its future earnings potential.
Next, the valuator analyzes the company’s balance sheets, income statements, and other financial documents.
They also examine the current and future market scenarios, industry trends, the location of your business, and your customers before reaching the final step – reporting.
A few methods are used for business valuation. These vary from industry to industry, the size and complexity of the business, and the evaluators.
These methods are:
1. Market Capitalization
Used by public companies, it calculates a company’s value by multiplying its total number of outstanding shares by the share price.
For example, if the share price is $50 and there are 20,000 shares outstanding, the business’s worth is 20,000 X $50 = $1,000,000.
2. Asset Approach or Asset-based Valuation
Manufacturers and real estate owners usually use this approach. First, add the value of all business assets, such as cash, land, machinery, and other assets.
Then subtract loans, debts, and other liabilities to get the total value.
For example, the total assets of a company are $5,000,000, and its liabilities are $2,000,000. The business value is $5,000,000 – $2,000,000 = $3,000,000.
3. Income Approach or Discounted Cash Flow (DCF)
Here, future earnings are calculated and multiplied by a discount rate to convert them into their present value.
Subscription-based and SaaS companies generally prefer this method.
4. Market Approach
The appraiser compares small or medium businesses with the sales data of others in the same industry with a similar size, profitability, and location profile.
Since 2009, I’ve been helping such businesses grow. I have seen that the market approach method gives the most accurate estimates.
5. Earnings Multiplier
For both public and private companies, the earnings multiplier assesses a company’s value by multiplying its annual earnings by a standard industry multiplier.
6. Book Value Method
In this method, the company’s balance sheet shows the worth of assets and liabilities. These are adjusted to reflect the current market values.
Then, liabilities are subtracted from assets to determine net worth.
Certified vs. Non-certified Business Valuations
So do you always need certified business valuators?
Let’s discuss when you certainly need them and when you can do without them:
| Aspect | Certified Business Valuation | Non-Certified Business Valuation |
|---|---|---|
| Conducted By | Certified professionals (e.g., CVA, ASA, CPA/ABV) | Business owners, consultants, or analysts without certification |
| Purpose | Formal uses such as mergers, litigation, IRS, or financing | Internal planning, informal sale discussions, or general estimation |
| Methodology | Follows recognized valuation standards (AICPA, NACVA, USPAP) | May use simplified or non-standardized approaches |
| Documentation | Detailed report with supporting analysis and compliance disclosure | Basic report or summary, often lacking formal structure |
| Credibility | High — accepted by courts, lenders, and investors | Limited — often not recognized for legal or official purposes |
| Cost | Higher due to certification and depth of analysis | Lower, more affordable for small businesses |
| Accuracy | Typically more precise and defensible | ay be less reliable or subjective |
Factors Affecting Costs of Business Valuation
Before you hire an evaluator, you should understand the factors that affect the cost of business valuation services. These are:
- Purpose: Identify why you want to have a business valuation. The cost will depend on the purpose.
- Business Size and Complexity: The larger the business size, the greater the complexity, the higher the business valuation cost.
- Method of Valuation: The combination of multiple methodologies will increase the business valuation price.
- Turnaround Time: The more urgently you need the valuation done, the higher the business valuation cost.
- Expertise of Evaluators: Certified valuation experts will charge more than non-certified ones.
- Updated Documents: If you have maintained a clean record of financial documents, the valuation charges will be lower. However, if this sounds like a nightmare, now is the time to outsource.
Let’s connect today so I can give you actionable insights about outsourcing effectively, and you are free to focus on what really matters.
Business Valuation Cost – Full Breakdown
To help you get started, here’s a full breakdown of how much a business valuation should cost.
For small businesses:
- Limited scope report: Under $1,500
- Information appraisal report: $1,500-$4,500
- Certified appraisal: $5,000-$8,500
- Prequalified appraisal: $3,000-$5,000
- Quality of earnings report: $10,000-$15,000
- Machinery and equipment appraisal: $3,000-$5,000
- Commercial real estate appraisal: $3,500-$10,000
- Update report: $500+
For medium businesses:
- Limited scope report: Under $1,500
- Information appraisal report: $1,500-$3,000
- Certified appraisal: $1,500-$7,000
- Prequalified appraisal: $7,500-$20,000
- Quality of earnings report: $5,000-$10,000
- Machinery and equipment appraisal: $15,000-$25,000
- Commercial real estate appraisal: $5,000-$20,000
- Update report: $1,500-$4,000
How to Choose the Right Business Valuation Partner
If you consider the following factors before settling on one business valuation partner, you will save time and money:
- Go for relevant experience: If you’re a small to medium-sized business owner, hiring a business appraiser who specializes in enterprise-level mergers and acquisitions will not serve your purpose and will cost you an arm and a leg.
Hire someone who knows your industry and has relevant experience. - Trust your lawyer: Your lawyer should be able to guide you on choosing the right business valuation partner because their experience will help you avoid costly mistakes.
- Balance quality and affordability: Choose a business appraiser with work experience in the top business valuation firms, but who now works independently or in a smaller firm. Chances are that you won’t have to pay big money, but you get top quality.
- Check client reviews: Read client reviews of business valuation experts from websites and social media. Choose the one who has the best reviews relevant to your business and purpose.
- Be #1 on their priority list: Choose a business valuation expert who gives you enough time to understand the process, what to expect, and shares a transparent cost breakdown.
Tips for Reducing the Cost of a Business Valuation
Follow these tips to help reduce business valuation costs:
- Be prepared: Keep your income statements, balance sheets, cost of goods sold, inventory tracking, and other financial statements filed and updated so that the valuator doesn’t need to spend time cleaning up the data.
- Keep personal expense reports separate: If you spend from your business account for personal reasons, always reconcile it. The business appraiser won’t need to spend time on it and charge you more.
Financial accountability is one of the key aspects an entrepreneur must assume when starting a business. - Choose the right type of valuation: Know the purpose of business valuation to avoid unnecessary costs.
- Specify the scope: Tell the valuator exactly what you need. If you don’t need complex calculations and a big, fat report, say so early on.
- Choose an experienced appraiser: Don’t go for the lowest bid. It often leads to multiple revisions and higher costs. An experienced appraiser who knows the industry will be more efficient.
- Don’t rush: Plan ahead so that a short turnaround time won’t drive up the cost.
- Share all documents: Give the valuator a head start by sharing all the necessary industry information and past business valuation reports.
Frequently Asked Questions (FAQs)
Here are some commonly asked questions about business valuation cost:
Why Are Certified Valuations More Expensive?
Certified valuations are more expensive because the appraisers are certified by a recognized body and do a more in-depth research and analysis.
Do Costs Vary by Geographic Location?
Yes, costs vary by geographic location due to political and economic situations, climate changes, and regulatory requirements.
Are Free or Low-Cost Valuations Accurate?
No. According to research, low-cost and free valuations tend to undervalue a business.
Can I Estimate My Business Value on My Own?
Yes, you can by using a market approach to compare sales data in your industry.
Plus, you can use the discounted cash flow approach to predict future earnings and use the right discount rate to get the present value of those earnings.
Conclusion
To summarize, for small and medium business owners, the business valuation cost ranges between $1,500 and $25,000.
But if you follow all the tips I’ve shared in this blog, you’ll pay less.
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