A business appraisal is a licensed broker's written opinion of what your business would sell for on the open market today. A formal valuation is an independent report prepared by a chartered accountant, written so a third party can rely on it.
The quickest way to choose: ask who's going to read the number.
Side by side
| Business appraisal | Formal valuation | |
|---|---|---|
| Prepared by | A business broker licensed under the Real Estate Agents Act 2008 | A chartered accountant, often a CA Business Valuation Specialist |
| Purpose | Deciding whether, when and at what price to sell | A figure a bank, court, Inland Revenue or other party can rely on |
| Based on | Normalised earnings, comparable sales and current market conditions | Detailed financial analysis, formal methods and documented assumptions |
| Standard it meets | REA Code of Conduct rules on appraisals | Professional and ethical standards for chartered accountants |
| Cost | Often free from a broker. Ours is free | A professional fee, quoted up front |
| Independence | Prepared by a broker who may go on to sell the business | Prepared by a valuer independent of any sale |
What a business appraisal is for
An appraisal is for owners weighing up a sale. It tells you what the market is likely to pay right now, why, and what could change that.
Licensed brokers have to meet specific rules. Under the REA Code of Conduct, an appraisal must be in writing, realistically reflect current market conditions and be supported by comparable sales of similar businesses in similar locations. If good comparables don't exist, the broker has to explain that to you in writing.
A good appraisal goes further than a number. It should flag what a buyer will question, from a short lease to owner dependence, and what you could fix before going to market.
Because a broker may go on to sell your business, an appraisal isn't independent in the formal sense. That's fine for deciding whether to sell. It's why a bank or court will want something else.
What a formal valuation is for
A formal valuation is needed when the figure has consequences beyond your own decision, such as:
- A shareholder leaving, or a buy-sell clause in a shareholders' agreement being triggered
- A relationship property settlement after a separation
- Transactions between related parties, where Inland Revenue expects market value
- Estate planning, succession or bringing in a new partner
- Bank lending, refinancing or a dispute heading to court
These reports are prepared by chartered accountants, often holding the CA Business Valuation Specialist designation through Chartered Accountants Australia and New Zealand. They're independent, they set out their methods and assumptions in detail, and they can stand up to scrutiny from the other side. If you need one, choose an independent business valuation from someone with no stake in the outcome.
When you might need both
Sometimes an owner needs both. Say two shareholders agree to sell the business, but one wants out now and the other plans to stay through the sale. A formal valuation can settle the price between them, while an appraisal tells them both what the market will pay when it's sold.
Having both side by side is useful. If the formal valuation and the market appraisal are far apart, it's worth understanding why before anyone signs anything.
Common questions
Is a free business appraisal any good?
It should be. A licensed broker's appraisal has to meet the REA Code of Conduct, so it must be in writing, reflect current market conditions and be backed by comparable sales. Free just means you're not paying a fee for it.
Can I use a broker's appraisal for the Family Court or Inland Revenue?
Generally no. Those situations call for an independent valuation from a chartered accountant.
Is an online calculator an appraisal?
No. A business valuation calculator gives an indicative range from the figures you enter. It's a useful first look, but it isn't prepared by a licensed broker and isn't backed by comparable sales.
How long does each take?
A broker's appraisal usually depends on how quickly you can supply your financial information. A formal valuation generally takes longer because of the depth of analysis involved. Ask for a timeframe when you request a quote.
Book your free appraisal
If you're thinking about selling, start with a free, confidential business appraisal. You'll get a written opinion of market value, the evidence behind it and a clear view of what would lift it. If it turns out you need a formal valuation, we'll tell you and point you in the right direction.