A business like any other asset, is worth what a buyer is willing to pay, and what an owner is willing to accept. Buyers are primarily concerned with the cash flow that the business generates, and the corresponding return on their down payment. To accurately determine the true worth of a business, the company's accounting reports, prepared primarily for tax purposes, must be restated to reflect the true financial performance of the business.
 

Most business are sold as "asset sales" versus selling as stock transfers. This means that the business owner will retain certain assets and may pay certain bills. Typical examples of assets retained are cash in the bank, vehicles, life insurance policies, etc. When an expert is determining the price a business should produce on the open market, the report that is prepared is a business valuation.

 

A business valuation takes into consideration the fair market value of the assets and the ability of the business to earn money, or "going concern" values. Many factors must be considered when arriving at the market value. Business appraisals take into consideration the value of the business totally intact. This type of report is usually prepared for trusts, inheritance taxes, estate planning, partnership buyouts, divorce settlements, and other non- traditional sale of business application. Certain standards must be met for such a report to comply with the requirements of the Internal Revenue Service, state and federal courts.