What is a BPO and Why Do You Need One?

What is a broker price opinion?

Simply put a broker price opinion provides a business owner with a value for their small business based on market variables, comparable sales data, and industry expertise that a buyer would willingly pay for the business on the open market. Some of the factors a business broker will analyze are the company’s financial performance, market position, customer base, equipment value, and the business’s organizational structure.

Once the appraisal is completed, the broker will develop a BPO report to share with the client for reference, this report will outline the selling price the broker recommends and include comparative market analysis. Typically, if a client is not ready to list their business for sale, they will use this report to continue to build the value of their company for a future exit, so they can receive the return on investment they’re looking for.

Why do you need a broker price opinion?

There are a few reasons why an individual would seek a valuation of their business. The reason for the need will dictate the methodology of valuation, so it is important to be upfront about the reason for the business appraisal with your appraiser. Following are the standards of value to familiarize yourself with when you’re ready for a BPO.

The Fair Value of a business is used for legal proceedings such as dividing assets for a divorce.
Stock values are based on the Intrinsic Value of a business and are used for investors preparing to make an investment.
When a strategic buyer is looking to make an acquisition they will consider the Investment Value or Strategic Value of a company. This value is different than the fair market value and will likely exceed it, because the value of the business is based on that particular buyers valuation.
A broker price opinion is based on the Fair Market Value of the business. This is the price a business can trade for between a willing buyer and a willing seller on the open market and is calculated as a multiple of cash flow.

Who can provide a broker price opinion?

While there are a number of professionals that can provide an opinion of value from licensed appraisers and accountants to real estate professionals and lenders, when it comes to selling a business it is important to work with a professional business broker or a business brokerage firm. A business broker has the market expertise and access to the comparables data required to build a price opinion that can later be used as the listing price of a business for sale. This is important because as mentioned above there are a number of reasons for requiring a business appraisal and they each come with their own standard of value and appropriate valuation methodology.

How much does a broker opinion of value cost?

If you’re already working with Transworld as a client, than your price opinion is part and parcel to the process of selling a business, thus it is complimentary. Typically, a price opinion takes up to a week to complete and the fee varies based on the business brokerage and the size of the business (read complexity of the business). Speaking with a business broker is the best way to determine the fee for a price opinion, which in Transworld’s case, can later be applied to a business sale.

How does a broker's price opinion work?

A broker price opinion is based on a number of variables like business size, market, industry, geographic location, cash flow, and sales comparables which the broker then uses their experience to weigh to ultimately develop an appraisal (or BPO report) of the business. This price can later be used to list a business for sale on the current market.

If you only take away one nugget of wisdom from this valuation discussion, it should be that a business for sale is only worth the selling price a buyer is willing to pay for that company, which is why we always clarify with clients that valuation is an art not a science. To learn more about our broker price opinion services, we invite you to schedule a free consultation with one of our brokers, or visit our website.

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Rachael Holstein has been the Marketing Manager for Transworld - Rocky Mountain since 2016. Her work experience has been largely focused on business development and marketing in business brokerage, finance, architecture, property management, and information technology. A long time resident of Cleveland, Ohio, she attained her undergrad from John Carroll University and her Master’s Degree from Cleveland State University. In 2013, she relocated to Denver with her husband, Joe, and her furry companions to explore the mile high lifestyle!