IV. Purpose & Use of Business Appraisals

1. What are the reasons I might need to appraise my business?

   The Purpose and Use of an appraisal plays a large part in determining the scope of the assignment, the type of appraisal to be conducted, the type of report to be completed, and the methodologies to be utilized. USPAP Standards and most standards promulgated by the professional appraisal organizations require that the Purpose and Use of an appraisal be stated in the appraisal report. Business appraisals can generally be categorized into three groupings:

   a.	Transaction Based	Mergers, acquisitions, divestitures, ESOP's, buy-sell agreements, exchange ratios, roll-ups, leveraged buyouts, initial public offerings, fairness and solvency opinions, and debt and equity financing.
   b.	Tax Based	Gift & estate taxes, estate planning, S corporations conversions, charitable contributions, creation of family limited partnerships, ad valorem taxation, and the granting of stock options.
   c.	Litigation Based	Divorce, condemnation, bankruptcy, shareholder actions, breach of contract, and a variety of damage determinations.

2. Can a value be placed on a company logo, its' Website and the tenure of its' work force?

   Yes, these are intangible assets that are frequently appraised by business appraisers utilizing standard appraisal methodology.

3. Does a small family business need an appraisal?

   Small family businesses often need business appraisals for many of the same reasons large companies need appraisals. Estate planning and gifts of ownership interest are frequent uses for of an appraisal for a family owned business.

4. Can a business appraiser value the real estate and machinery & equipment for my company?

   Appraisers tend to specialize in specific appraisal disciplines falling into the following categories often with many sub-categories within each.

   1. Business Valuation
   2. Real Estate
   3. Personal Property including Machinery & Equipment, residential contents, vehicles, antiques, coins, art, jewelry, boats, and other specialized assets

   Appraisers should be qualified to conduct an appraisal by virtue of education, experience, and professional designations. Professional appraisal organizations typically specialize in providing education and professional designations for its members who meet their minimum requirements. It is a violation of USPAP to accept an appraisal assignment without having the necessary credentials to conduct the type of property to be appraised without so informing the client.

5. What is intellectual property?

   Intellectual properties are considered intangible assets which for valuation purposes must have the following characteristics:

   1. Have a legal existence
   2. Have economic substance
   3. Can be legally transferred
   4. Have a practical business reason
   5. Are actually used, or used up, in normal business operations
   6. Can be associated with a determinable royalty rate or other transfer pricing

   Examples of intellectual properties include trademarks, trade names, books, recordings, and computer software.

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