Issue link: https://www.massageandbodyworkdigital.com/i/68165
VALUATING YOUR PRACTICE WHAT IS A BUSINESS VALUATION? A business valuation is a report compiled by professionally trained appraisers, accountants, and/or business brokers that estimates the economic value of a business or a person's interest in a business. According to Andrew Rogerson, author of Successfully Sell Your Business: Expert Advice from a Business Broker, there are essentially three types of business valuations: broker's opinion of value, standard appraisal, and a business appraisal report. Though you may not need all of them to sell or place a value on your massage therapy business, it is helpful to have an understanding of each. The broker's opinion of value (BOV) can be created by anyone, as long as they disclose their training and experience. It's important that the report shows the qualifications of the person that put the appraisal together and the methods they used. A BOV can be created with limited access to your financial information and a set of comparable sales. This type of business valuation can be used to arrive at a selling price (or value) for a business, and is generally used by business brokers. It does not conform to the Uniform Standards of Professional Appraisal Practice (USPAP), though, and cannot be used in a court of law for divorce proceedings, to settle with the Internal Revenue Service (IRS), or buy out a partner in your business. The cost of this type of valuation, according to Rogerson, is between $500 and $1,000. The second type of business valuation is a standard appraisal, which uses a limited set of valuation techniques, but is USPAP-compliant. This valuation essentially details how the appraiser reached the value, but does not include information such as the condition of the national Too many owners wait until they want to get out of their business to pay attention to the value of it, which is a mistake. economy, the history of the business, the outlook of the industry, and in- depth financial analysis. The cost of this type of valuation ranges from $2,500 to $4,000 and may be too detailed for a massage therapist wanting to sell or value a practice. Rogerson says the third type of business valuation is a business appraisal report. This document is also USPAP- compliant, and covers in-depth financial analysis, ratios of the business, as well as a presentation of the economy, its impact on the business, and full details of the company. This business valuation ranges from $5,000 to $12,000, though costs can go as high as $30,000 for very complex companies. This report is probably too in-depth for therapists who want to sell or value a practice. For standard appraisals or business appraisal reports to meet USPAP standards, they must be approved by someone holding the correct certifications. "There are different organizations that provide the initial and then ongoing training, testing, and then certification of their appraisers so the reports meet USPAP standards," Rogerson says. "These include the American Society of Appraisers, the Institute of Business Appraisers, and the National Association of Certified Valuation Analysts." DO I NEED A BUSINESS VALUATION? "The valuation game begins the day you start a business," says Neil Ducoff, founder of Strategies, a salon and spa business education resource. According to Ducoff, too many owners wait until they want to get out of their business to pay attention to the value of it, which is a mistake. Bryan Cook, an appraiser in Tennessee, concurs. "If a business owner wants to get the very best price for their business, they should employ a business broker to give them a valuation at least two years before they want to sell," he says. "If there are major defects in the business operations or accounting practices, they can be repaired in that time." Cook says an attorney and accountant should also be consulted to minimize tax effects or any future liability from the sale of the business, and a good financial planner is helpful in transitioning the gains from sale into investments appropriate for the risk tolerance and life stage of the seller. WHAT AM I SELLING? Your massage and bodywork practice is a service-oriented business, so you'd think that you'd be selling or placing a value on your customer list, right? Well, essentially that's true, but there are other considerations that may make your business worth more money. 64 massage & bodywork january/february 2010