Businessweek.com put out an article today under its Small Biz section titled “How to sell your business”.  We want to draw your attention to the section discussing business appraisal.  In summary, the author of this article suggests that the business owner conduct an analysis of their financial statements and an exercise known as “recasting”.  Bottom line, this is an adjustment of owner’s salary, discretionary expenses, one-time fees, interest, depreciation and other expenditures.  Then, the writer suggests the owner adjust fixed assets to fair market value.  Once complete, THEN hire a business appraiser.  Huh?

This is a slippery slope for a business owner.  The aforementioned recasting of financial statements and fair market value asset adjustments should be conducted through the work of a business appraisal company.  Most firms will identify these key factors through extensive data gathering, questionnaires, and owner feedback.  It is our professional recommendation that if a business owner plans to sell a business, they conduct a business valuation first and rely on those hired professionals to walk them through the entire business appraisal process.  You are paying for professional advice, so let the pros do their jobs. 

Otherwise, if an owner begins doing their own recasting, odds are they get overly creative and add-back too many expenses which would then be disputed by a savvy buyer — thus negatively impacting sales price and putting doubts in a buyer’s mind about the seller’s transparency and honesty. 

Know your value.  Know your business.