Your CPA’s valuation is not an asking price.
That sounds obvious until an owner holds two documents side by side and has to decide which one is “the number.”
Say a business owner runs a pool service company. $1.3 million in revenue, $330,000 in SDE (seller’s discretionary earnings, meaning profit plus the owner’s pay and personal perks). A few years ago, a business appraiser produced a formal valuation for the company’s buy-sell agreement. This year, a broker prepares a broker opinion of value (BOV) because the owner is thinking about selling.
The appraisal says $539,000.
The BOV says $858,000.
Same company. Same financials. A $319,000 gap.
Neither one is wrong, which is the part that surprises people.
They’re answering two different questions
A formal appraisal is built to hold up with the IRS, a court, or a partner on the other side of a dispute. It typically uses the standard of fair market value, which the IRS defines in Revenue Ruling 59-60 as the price at which property would change hands between a willing buyer and a willing seller, neither under compulsion, both with reasonable knowledge of the facts. That ruling was written for estate and gift tax valuations, and its framework (earning capacity, goodwill, financial condition, comparable companies) still shapes how many appraisers think.
A BOV asks something narrower: what is the most likely price a real buyer will pay for this business, in this market, this year? It leans on actual transaction comps and SDE multiples, and it is built for a sale, not a courtroom. As one broker network puts it, appraisals are for legal or tax reasons, while a BOV is designed for market transactions and gives you an asking price you can defend to buyers.
Back to the pool company. The appraiser did what appraisers do. They paid the owner a market salary of $85,000 for the job he does, which left $245,000 in normalized earnings, then applied a 2.2x multiple. $245,000 times 2.2 is $539,000.
The broker valued it the way the likely buyer will. A first-time owner-operator, usually financed with an SBA loan, steps into the job and takes home the full $330,000 as their own paycheck and return. At 2.6x, that’s $858,000.
Different earnings base. Different multiple. Different buyer in mind.
Where owners get burned
The danger isn’t having two numbers. It’s using the wrong one at the wrong moment.
Take the owner who sees the $858,000 BOV and assumes the old $539,000 appraisal was lowballed. He may still have a buy-sell agreement tied to that number, and that agreement doesn’t care what a market buyer would pay. Or take the owner who finds the $539,000 appraisal in a drawer, assumes that’s what the business is worth, and sells to the first offer near that figure. He just handed a buyer more than $300,000 of value for free.
Here’s where it gets expensive in both directions. An appraisal sitting in a file can anchor you low. A BOV that’s never been tested can anchor you high, and a buyer’s lender will happily pull you back down. Either way, the number you carry into the process shapes every decision after it: when you list, what you counter, what you’ll walk away from.
One more catch. A BOV is an opinion, not a promise. It’s only as good as the SDE behind it, which is why the add-backs underneath it have to hold up in diligence. If $60,000 of the $330,000 doesn’t survive a buyer’s scrutiny, the 2.6x suddenly applies to $270,000, and the $858,000 becomes $702,000.
Which one do you actually need
It depends on what’s about to happen.
If you’re settling an estate, funding a buy-sell agreement, handling a divorce, or dealing with a partner dispute, you need the formal appraisal. It’s built for that, and it costs real money for a reason.
If you’re thinking about selling in the next year or two, start with a BOV. It’s faster and cheaper, and it answers the question you’re really asking: what would a buyer pay me?
If both apply, get both, and ask whoever prepared each to walk you through the gap. The explanation matters more than either number. If the gap comes down to the owner’s salary replacement and the multiple, you’ll know it, and you won’t be surprised when a buyer’s offer lands between the two.
The takeaway
An appraisal tells you what your business is worth under a defined legal standard. A BOV tells you what it will probably sell for.
Know which question each number answers before you rely on either one.
And before you go to market, pressure-test the SDE underneath whichever figure you’re holding. A number built on add-backs a buyer will throw out is just a nice story.
Curious what your business is worth?
If you’ve got a valuation sitting in a file somewhere, or you’re just wondering where your business would land with a real buyer, let’s talk. I’ll walk you through what a buyer would see, no pressure and no obligation.