Business Appraisal or Business Valuation?

So I’ve been asked if the work we do is termed a ‘business valuation’ or a ‘business appraisal.’  It is a good question; intuitively we all understand they both mean effectively the same thing.  But after being asked several times, I wondered if there could be some trivial, technical difference between the two I wasn’t aware of.  I did some quick research to get to the bottom of it.

Short answer:  they are the same thing.  The terms ‘appraisal’ and ‘valuation’ are synonymous and used interchangeably.

Here’s what I learned.

The International Glossary of Business Valuation Terms is the central resource for defining business valuation terms.  It defines ‘appraisal’ and ‘valuation’ identically.  They are both “the act or process of determining the value of a business, business ownership interest, security, or intangible asset.”

A review of the IRS’ Revenue Ruling 59-60 also shows the terms used interchangeably.   Revenue Ruling 59-60 is the definitive source used when valuing shares of stock in closely held companies, so the fact that there is no separation of meaning in this document is significant.

Uniform Standards of Professional Appraisal Practice (USPAP) defines ‘appraisal’ as “the act or process of developing an opinion of value.”   USPAP does not, however, provide a definition for “valuation”.  It does define an ‘appraiser’ as one who is expected to perform valuation services…,’ but it does not go so far as to actually define ‘valuation.’  A quick review of USPAP Standards 9 and 10 (specific to business appraisal) found no use of the term ‘valuation’, only ‘appraisal’ was used.  So within USPAP, valuation and appraisal are not synonymous and not used interchangeably.

I did view several other sources and found the terms to be synonymous with one another.  So while USPAP, a very important set of standards for business appraisers, does not include use of the term ‘valuation’, it is my view that because numerous other sources do use ‘valuation’ and ‘appraisal’ interchangeably, that it is fair and correct to do so.

If you have any thoughts or questions to add, please feel free to comment below.

 

 

 

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