Is a broker’s opinion of value the same as a business valuation?

The two documents can look alike, and both may carry a number, but they come from different people. A formal valuation report is prepared by a business valuator. An opinion of value comes from a business broker, whose role in a sale, according to BDC, includes helping an owner approach potential buyers. The useful question is what yours was prepared for.

What a formal valuation report is

CBV Institute says its Practice Standards and Code of Ethics are mandatory for CBV professional practice. It says the standards set the minimum standard of care, covering the amount of work required, how an engagement is conducted, how conclusions are communicated and what file documentation is kept. Its updated standards name three levels of valuation conclusion: calculation, estimate and comprehensive. CBV Institute describes Calculation as the least extensive scope of work, and says that even at that level significant inputs and assumptions must be supported. BDC adds that a valuator’s figure is a guideline for negotiating a sale, not a fixed price.

What a broker’s opinion is

It is the broker’s own view, and the CBV Practice Standards are written for CBV work products. The sources for this page do not say what standard, if any, a broker’s opinion of value follows, so this page does not say. Ask the broker in writing what method and records the opinion rests on, whether it follows any professional standard, and what purpose it was prepared for.

When a formal report may be needed

CBV Institute lists situations where a supportable value matters: succession and estate planning, disputes over the value of a business or its shares, tax events, and shareholder buyouts and buy-sell agreements. Which of these applies to you, and what the other side or the tax authority would accept, are questions for your lawyer and accountant. Whether you need a professional valuation depends on the purpose, and how to commission one is covered separately.