Recent years have seen an increase in the availability of electronic tools, both online and in software packages, that purport to provide reliable business valuations. The popularity of these programs is due in large part to the cost savings they offer over traditional valuation services — online system prices range from no cost to a few hundred dollars, and software costs range from less than $100 to several hundred dollars. Nonetheless, the tools’ inability to consider important valuation factors means they are no substitute for an appraisal by a trained professional.

Problems with E-Valuation Tools
The biggest shortcoming of e-valuation programs is the lack of individualized professional judgment. The various standardized appraisal systems used by most programs are based on a variety of assumptions. An e-valuation program can’t determine which assumptions are appropriate for a specific business, although users who apply the same assumptions each time they conduct an e-valuation may be able to discern useful trends.

To render an accurate valuation, professionals know they must familiarize themselves with the company itself. A professional appraiser will make on-site visits and take other measures to learn about the company’s personnel, strengths and weaknesses, management, products, customers, and suppliers. An appraiser will also search for and evaluate available market information, including prices paid for similar companies.

Don’t Shortchange Your Business
The wise business owner will turn to electronic valuation tools as a useful resource for data reports. While an e-valuation program may provide some useful information at a low cost, it can’t replace an appraisal by a qualified professional.