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Business Appraisals: Everything You Need to Know Before Getting One

A business appraisal is the process of valuing your business. If you’re considering hiring an appraiser, here’s what you need to know.

To you, your business is invaluable. 

However, there are many different reasons why a small business owner may need to appraise their business. Whether you’re bringing on a business partner , applying for a loan, or selling, knowing the monetary value of your business can come in handy. 

If you think you may need an appraisal and don’t know where to start, keep reading. We’ll guide you through what you can expect, the process of hiring an appraiser, costs, and other alternatives that could be a better option for you. 

If you’re still planning on running your business after the appraisal, don’t forget to download our guide on how to turn your website into a small business apps to generate steady revenue and growth. 

What is a Business Appraisal? 

An appraisal is the best way to get a fair and unbiased assessment of the value of your business, property, or assets. It requires you to hire a certified professional to conduct a thorough analysis of your business’s economic prospects, property or physical assets, market value, and financials. 

The process of conducting an appraisal varies, however, it’s important to note that all comprehensive appraisals take time—avoid hiring any appraisers that promise a quick turnaround. 

Why Would My Business Need One?

As we mentioned above, there are multiple reasons to hire a business appraiser. Below are some of the most common: 

• Buying or selling a business: An appraisal will help you come up with the dollar amount that both parties feel comfortable with. 
• Buying or selling a business property: Not all businesses have real estate but if you do, you’ll need to hire an appraiser that specializes in real property.  
• Getting divorced: A divorce oftentimes involves the splitting of assets, which can include business properties—especially if you run a family-owned business.  
• Filing for bankruptcy: An appraisal will help with creditor negotiations and preparing a financial restructuring plan. 
• Applying for a loan: Some business loans, such as EIDL loans , require you to use your business or certain parts of your business as collateral. In this case, an appraiser will evaluate those assets. 
• Separating from or bringing on a new partner: Hire an appraiser if you’re looking to settle a dispute with a business partner or draft a buy-sell agreement. 
• Filing an insurance claim: After a natural disaster or damages, an appraiser may be called in by your insurer to determine repair costs. 

How Will My Business Be Valuated 

Depending on your needs, your appraiser will choose the appropriate approach to estimate the value of your businesses. Here are some of the most common ways: 

Market Value 

A market value approach can involve an analysis of your business’s economic performance, such as revenue, profit, and both tangible and intangible assets. It’s then compared to similar businesses in an open market to determine a potential selling price. 

Asset Value

This approach is commonly used when a business is expected to close. It involves subtracting your liabilities from the value of your assets based on their fair market value to obtain your business’s overall appraisal.  

Earning Value

For this approach, appraisers use projected income earnings or cash flow. Based on the method used—such as capitalization of earnings or discounted cash flow—a capitalization or discount rate is applied to those projections. 

Hiring an Appraiser

A good appraiser will be able to determine the best method to evaluate your business and give you an unbiased assessment. Below is what you can expect when looking for and hiring a business appraiser.  

First, it’s important to note that there are a few specializations for appraisers. If you’re looking to appraise your business’s real estate or intellectual property, there are appraisers who specialize in each. If you’re just looking for a general business appraiser, be sure to look for one with experience in your area and industry. 

Hiring an appraiser is not cheap. Unfortunately, many legal proceedings such as divorce or a partner dispute may require it. On average, appraisers charge between $20 to $500 per hour and take 20 to 50 hours to complete an appraisal. 

If your needs aren’t very complex, you may be able to get an appraisal for $1,000. However, the range is typically between $3,000 to $35,000—the figure tends to be on the higher end when litigation is involved. 

When hiring an appraiser, you will first need to discuss the reason why you need a valuation and your main goal. Prepare to go over the financial and operational structure of your business and gather all documentation including financial records, tax returns, payroll, inventory reports, shareholder agreements, lease and loan documents, business plans and projections, etc. 

You’ll then want to verify that you both agree on the scope, timeline, and fee. It’s also good to keep in mind that an appraiser is there to conduct their evaluation fairly and independently—they are not your business’s employee or advocate. 

Doing Your Own Business Valuation

If there aren’t any legal requirements to hire an independent appraiser, you may also choose to do it yourself. Although there’s plenty of room for bias, doing your own valuation is a great way to understand what your business is worth and how to measure it. It also makes for a perfect practice run if you’re planning on selling your business down the line. 

We suggest researching the valuation methods we discussed above in-depth and choosing the one that best suits your goals. Use any knowledge you gain from your own business valuation to help with pitching, negotiating, or growing your business . 

Speaking of growing your business—if you’re ready to transform your website into a revenue-generating, digital storefront , be sure to check out this guide! 

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What Is a Business Appraiser?

Definition & Examples of Business Appraisers

How Does a Business Appraiser Work?

• Do I Need an Appraiser?

Types of Business Appraisers

Cost of hiring a business appraiser, can i do my own business valuation.

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In general, an appraiser is someone who assesses the value of a piece of property, particularly to determine a fair sale price. A business appraiser specializes in evaluating tangible and intangible property to determine what a business is worth.

Business owners may need a fair appraisal for many different reasons, from preparing for a sale to making an initial public offering. Any time an owner or prospective buyer needs an unbiased, outsider opinion of the business's value, they would hire a business appraiser. Learn more about what these specialists do and when you might need their help.

All types of property have value, including business property, and the value of that property is best determined by hiring an expert called an appraiser. Appraisers work in all types of situations: 

• A property/real estate appraiser evaluates the value of homes and other real property.
• Some appraisers specialize in certain types of property, such as livestock appraisers and art appraisers.

Regardless of the type of appraiser, they are required to use unbiased methods to provide a fair valuation of the property. Business appraisers are required to operate independently to prepare a business valuation or to value business assets, using financial analysis, physical review, and industry comparisons.

Business appraisers must meet specific standards to achieve what's called Certification in Entity and Intangible Valuations (CEIV). Several organizations offer pathways to this certification, such as the American Society of Appraisers. Appraisers can also be certified/licensed by state regulatory boards for the states in which they practice.

There are several ways to get certified to appraise businesses. Certified Public Accountants, for example, can receive a certification called Accredited in Business Valuation.  

An appraiser can value a business in several different ways. These might include:

• The fair market value method usually considers the value of all equipment, furniture and fixtures, vehicles, and intangible assets. Fair market value is defined as what the property would sell for in an open market, with the price determined by a willing buyer and willing seller.
• A liquidation value assumes that the business has stopped and all assets must be sold quickly. This is the most drastic valuation because it means that the business owner will receive only the minimum value. 
• A capitalization of earnings valuation seeks to determine a company's value today based on its projected future earnings. That is, working backward from a point in the future and using assumptions on how much the earnings will increase from the present. This can also be done in terms of future cash flows.

There are many other ways to value a business, and a trained appraiser will usually use several different valuation methods to come up with a few estimates for a business's value.

The valuation of shares of business stock is different from valuing the business or its assets. This type of valuation typically involves investment bankers, not a business appraiser.

Do I Need a Business Appraiser? 

There are many situations that might necessitate a business appraisal, including:

• Business buying and selling: Before selling a business, many business owners get an appraisal. For an ongoing business, there may be a need for an appraiser in a buy-sell situation, where one of the owners leaves the company. 
• Real estate : Within a business, there may be times when an appraiser is needed to value real estate, for sale or purchase. In this case, a real property appraiser is needed. 
• Business disputes : Appraisers may be needed to value a business within the process of business disputes, such as shareholder disagreements or divorces where the business property is involved.
• Business damages/disaster : An appraiser may be needed to value a business for insurance purposes, after a disaster or other damage to the property and assets. 
• Bankruptcy : The process of business bankruptcy usually includes an appraisal for valuation.

These are just a few examples. A business owner can seek out an appraisal at any time. 

Given the many possible scenarios for a business valuation, there are a variety of different kinds of business appraisers. Some specialize in valuing businesses for sale or for other purposes. Others focus on intellectual property (patents, copyrights, and trademarks) and other intangible assets .

An equipment appraiser, on the other hand, evaluates equipment for sale as part of a business transaction. For example, if a business wants a loan, and pledges specific business assets as collateral for that loan, an appraiser will review the condition of the assets and the fair market value.

The cost of a business appraisal depends on the circumstances. Most appraisers work by the hour, so the size and complexity of the company (the number of assets) play a big part in the cost. According to Mariner Capital Advisers, the cost of a business appraisal can vary from $5,000 to over $30,000.  

If you are looking for an appraiser for your business, check one of the Institute of Business Appraisers and The American Society of Appraisers . Both of these organizations formally accredit business appraisers.

You can run an informal valuation of your small business at any time. However, if you need a valuation for insurance or for selling a business, you will typically need an outside independent appraiser. Likewise, if your business is a corporation or partnership, or if you have multiple subsidiaries or other complex situations, you will definitely need the services of an independent appraiser.

Key Takeaways

• A business appraiser is someone who performs an independent assessment of a business's value.
• Business appraisers can be trained and certified by several different organizations to use unbiased methods to conduct business valuations.
• Business owners can seek an appraisal at any time but do so most often when preparing for a sale or dealing with certain disputes.

Appraisal Institute. " The Appraisal Profession ." Accessed July 17, 2020.

American Society of Appraisers. " CEIV™ Certification ." Accessed July 17, 2020.

American Institute of CPAs. " Credentials ." Accessed July 17, 2020.

U.S. Small Business Administration. " Determining the Value of a Business ." Accessed July 17, 2020.

Mariner Capital Advisors. " 10 Things To Know About Business Valuation ." Accessed July 17, 2020.

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Business Appraisal vs Business Valuation

In this article, we discuss the main differences between the two, when to get an appraisal and valuation, and why they are important for your business.

Most businesses get an appraisal or valuation from time to time. But do you know the differences between the two? Business appraisal and business valuation are two terms commonly used interchangeably, but they are different. Businesses have both tangible and intangible assets, and both can be valued through an appraisal and valuation respectively.

Business Appraisal vs. Business Valuation

The key difference between the two is: physical assets are appraised , while intangible assets are valued . Another difference between the two is: an appraisal serves as a pricing guide but doesn’t have legal standing, while a valuation gives a definitive value that can be used for legal matters.

What is a Business Appraisal?

An appraisal is a method of objectively examining or evaluating an asset, a business or organization, or a performance against a set of standards or criteria. A qualified appraiser normally performs an appraisal whenever a property or asset is to be sold, and its worth needs to be determined, or when a business’s tax obligations need to be established. It is determined by several elements, including potential, loans, assets, liabilities, net profit to owners, suppliers database, client database, patents, trademarks, website traffic, unique location, goodwill, leasing conditions, market competitiveness, and so on.

Types of Business Appraisal

The best strategy for your organization will be determined by the number of different jobs within it, the amount of time you have to devote to the review process, and the goals you want to achieve with the reviews. Various types of business appraisals are widely used, which are as follows :

• Business Assets – Business assets are frequently appraised, particularly when the company has to shut down. The appraiser determines the asset’s book value by subtracting the liabilities of the company from its assets.
• Capitalization of Earnings – Determining a company’s earnings is a more popular approach to valuing it. In capitalization of earnings, previously documented gains are examined and weighted. The appraiser gives the highest weight to recent earnings and gradually reduces the weight of earlier earnings records .
• Future Earnings – In contrast to the primary form of assessment that used historical earnings, discounted future earnings look at a company’s expected future profits. A discount rate is applied once the predicted earnings have been computed. Future earnings are given the most weight in both the future earnings approach and the capitalization of earnings, whereas future earnings are given minor importance in both.
• Capitalization Factor – The capitalization factor approach is determined by dividing the needed rate of return by 100 ; usually, 10, yielding a capitalization factor of 10.

Importance of Business Appraisal

Getting a business appraisal can be important for a company . It’s used in many scenarios such as when buying or selling a business, settling legal disputes, determining values (i.e. intellectual property) among others.

• Buying and Selling a Business – Before a firm is sold or bought, or before two companies merge, an assessment must be done to determine the most accurate worth of the company or companies to be acquired. If Business A is to be purchased by Business B , an appraisal will identify the most realistic price for Business A. This ensures that neither Business B nor Business A will have to pay an excessive amount, nor will Business A receive anything less than its true value or price.
• Settling Legal Disputes – Disagreements or a violation of contract are significant causes of legal conflicts among corporations. When this happens, the persons involved seek legal help because it is the most effective way of resolving disputes. A business appraisal will be required by the court to hear the case. This is done to prepare the details if finances need to be reallocated, the firm sold, or assets liquidated.
• Determining the Value of Intellectual Property – While some individuals believe that a business’s tangible assets are the only assets that may be assessed, intangible assets , such as intellectual property, can also be valued. The worth of a company’s intellectual property must be determined because it is thought to add to the total value of the company.
• Determining Tax Liability – Taxes are imposed on all businesses. Taxes are calculated based on the estimated monetary value of the company; the higher the anticipated value , the higher the tax due .
• Raising Funds – When a firm wants to attract and persuade investors to invest in it, the simplest way is to give an evaluation value. If a company’s worth is high , investors may be enticed to put additional money into it.

Pros and Cons of Business Appraisal

Some companies conduct performance evaluations because they believe they are compelled to do so — because everyone else does. Other companies do performance evaluations to ensure that they have a piece of paper in the employee’s file in case they need to take corrective action in the future.

Pros of Business Appraisal

• Documentation – A PA keeps track of an employee’s performance over some time . It’s a piece of paper that goes into an employee’s file.
• Structure – This procedure establishes a framework within which management and an employee can meet and discuss performance. Employees desire feedback, and this procedure allows a manager to deliver it to an employee by providing feedback on their performance and discussing how effectively the person’s goals were met. It also gives you the chance to talk about staff development options.
• Clarify Expectations – Employees must know what is expected of them, and the PA process allows a manager to do so while also discussing difficulties with their employees.
• Annual Planning – It gives a framework for thinking about and planning the following year and establishing personal objectives.
• Employee motivation – As part of a holistic compensation strategy, the procedure should reward employees with a merit raise .

Cons of Business Appraisal

• Negative Experience – When done incorrectly, a performance review may be a negative experience for both the employee and the management. This can be aided by proper process and skill training.
• Time Consuming – Performance assessments take a long time and can be overwhelming for managers with a large number of staff. I’ve worked with managers who were in charge of performing annual performance appraisals on hundreds of employees.
• Natural Biases – Human evaluations are prone to natural biases, which lead to rater errors. To eliminate biases from the process , managers must first understand them.
• Waste of Time – If not done correctly, the entire process might be a waste of time. Consider the amount of time spent if the end outcome is negative. It’s a waste of time on all fronts.
• Stressful Workplace – Both employees and managers may experience stress as a result of performance reviews. Proper training might assist in alleviating some of the tension that comes with the procedure.

Understanding Business Valuation

A business valuation is a collection of processes and procedures for determining an entity’s or a group of assets’ economic value . The business valuation specialist must define standards and premises of value at the start of the collaboration. Fair market value , which reflects the investment value that a specific investment may acquire via cost synergies, and fair value, which reflects the investment value that a particular investor can obtain through cost synergies, are two examples of standards of worth.

Methods of Business Valuation

While one strategy may be more advantageous than another, you’ll almost always want to engage with a professional business appraiser to get the most impartial assessment of what your company is worth.

• Market Valuation Method – The market value business valuation formula is possibly the most subjective method of determining the worth of a company. This strategy compares your firm to similar businesses that have sold to evaluate its worth . It’s only effective for companies who have access to actual market data on their competitors. In this regard, a market value method is a callous approach for sole proprietors, for example, because comparable data on the sale of similar enterprises is difficult to come across (as sole proprietorships are individually owned).
• Cost Valuation Method – A way for determining the value of your firm based on its assets . According to your balance sheet, this method examines your company’s total net asset value minus the value of its total liabilities, as the name implies. This calculation considers the company’s present total equity , which is defined as assets minus liabilities.
• Income Valuation Method – The income approach , also known as the income capitalization technique , is a real estate assessment method that allows investors to estimate a property’s value based on its income. It’s calculated by dividing the rent collected net operating income (NOI) by the capitalization rate.

Importance of Business Valuation

Business owners invest a lot of time and effort trying to increase their firm’s value by creating growth plans with clear objectives. These plans are intended to maximize value over time , but achieving those goals might be difficult if you don’t know where to start. Owners must grasp how much their company is worth today and what supports and generates that value. This stage is frequently overlooked due to the owner’s overconfidence or disinterest. In this instance, a valuation frequently serves as a wake-up call for business owners who have a skewed or inaccurate perception of their company’s worth .

Pros and Cons of Business Valuation

When it comes to valuing a company, there are various approaches you can take. Each methodology has distinct benefits and drawbacks that may make it better suited to specific conditions.

Pros of Business Valuation

• Better Knowledge of Company Assets – Business valuation helps in determining the right value of company assets . The estimates made by experts might not be accepted since they have a much wider generalization which can be a problem for various businesses. When a business valuation is done, all the parameters are looked upon, which gives a better image about the company’s value. Business valuation methods help the company owners to analyze the adequate knowledge about insurance coverage, what to reinvest and what is the sales and how much profit it will make.
• Understanding of Company Resale Value – If you’re thinking of selling your business, you’ll need to know how much it’s worth. This process should begin well before the firm is put up for sale on the open market, so you can devote more time to increasing the company’s worth and achieving a higher selling price. As a business owner, you should be aware of the value of your firm. Obtaining true company value .
• Better During Mergers/Acquisitions – When a large corporation approaches you about buying your firm, you must be able to demonstrate the worth of the company as a whole, its asset holdings , how it has grown , and how it can continue to grow . Significant firms will want to buy or combine with your company for as little money as feasible. In order to make better mergers and acquire more value, it is important to understand the current scenario of the company.
• Access to More Investors – When a company knows its worth, it makes it easier for investors to buy the shares of the company. Investors might look into the business valuation reports and check the worth of the company. It also gives them a clear picture of how they can make better decisions while investing their capital. An organization without their business valuation doesn’t know at what price they should sell their products and what could be the value of the assets they have. Investors are attracted towards more profound companies with adequate funds and ongoing operations.

Cons of Business Valuation

There are different methods for business valuations, and while they work most of the time, there are times the methods don’t work for the valuation. Here are some disadvantages of business valuations :

• Assumptions – Most valuations assume that the company will survive and operate for a long time. However, this is not always the case as there are companies you don’t last long ( for example : young and start-up companies).
• Difficult to Find Comparable Companies – Your company’s job industry or nature may be uncommon in the business world and there are not many companies that can be used to compare yours. It can be hard to find comparable companies with similar growth prospects in order to calculate comparable valuation multiples.
• Does Not Give a Defendable Valuation – If you’re looking for a more comprehensive and defendable valuation, it’s important to understand the different valuation methods and see which one works for you. Some valuation methods (like the Venture Capital Method ) are typically used as a quick, indicative valuation only.

Get Expert Assistance for your Business Valuation

If you’re looking to get a business valuation , the Eqvista team is glad to help! Our highly trained analysts will help and guide you throughout the entire process . We also offer a platform for you to manage your company’s equity and shares. To learn more, please don’t hesitate to contact us !

More about Company valuation

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What are appraisals and are they important for my business?

Appraisals and the need for them are currently a hot topic in and around the business world.  Business leaders are questioning the importance of them. HR Managers are validating the need for them. But are appraisals a thing of the past or a necessary business process?

Whether you are of the thinking appraisals are a process driven, a form-filling activity that takes away creativity and adds more administrative pressure to managers and HR managers, or you think a standardised appraisal system is key to company performance – the importance to get it right, whatever approach you take is fundamental to success.

Even if you are a small, micro business getting the building blocks right to a successful, motivated and objective orientated workforce is key from the moment you hire someone.

You might have a brilliant employer branding strategy, excellent onboarding processes and a strong organisational culture, but does every employee understand their role, their objectives and how they align with the overall strategy and what they need to do to support it?

So what are appraisals?

Performance Appraisals or Performance Reviews as sometimes they are known are an individual plan for each employee. They don’t necessarily need to be resource heavy, paperwork-heavy and an unfavourable process, but they are key.

An appraisal should reflect the employee’s job, their key responsibilities, their wider participation within the team and their overall contribution (or expected contribution) to company-wide business objectives.

Appraisals should focus on performance and personal development with specific areas for employees and employers to concentrate their efforts on above and beyond the day-to-day environment.

Our 7 stage appraisal process breaks it down;

1) what should an appraisal look like.

Appraisals can look like a number of things, an Excel spreadsheet, a word document, or even a hand written piece of paper. More often than not, appraisals now ‘live’ online in the cloud as part of an organisation’s HR system freeing up storage space and keeping information secure (and handy!)

Whatever format you choose, keep it consistent across the business and stick with it!

But what does an appraisal actually look like? What messages? What themes? What headlines?

This is company-specific and again usually designed by the HR department to formalise the process and keep it consistent across the organisation. Even if appraisals are online, messages and key themes need to be organisation-wide but make sure they are specific to your organisation and not a standardised template (all good HR systems with performance management modules should be able to do this!)

For example, an appraisal could have SMART objectives; Specific, Measurable, Assignable, Realistic and Time-Based or it could be less measurable with top line ideas and expectations to be achieved.

Whatever headline messages you choose, whatever KPI’s you want to track, consider the purpose of an appraisal; to manage performance across the business and highlight opportunities for professional, personal development to achieve success.

2) Who should develop an appraisal?

Another healthy debate within the HR world, with HR professionals pushing people managers to be more self-serving, while managers often believe this is the responsibility of the HR department.

As HR departments become more active in business planning, keeping abreast of individual plans isn’t the best use of an HR professional’s time.

It is much better for the employee’s line manager to develop an appraisal with both the HR department, who can give a high level, company-wide objectives and then the employee who will be able to advise on their capability to deliver.

An appraisal, shouldn’t be a rigid document and process with a one type fits all approach (which is it why can’t be something HR are fully responsible for).  An appraisal needs to consider the individual, the manager and the department.  After all you can’t apply the same appraisal document to the receptionist in a hospital to a junior doctor; their key strengths and responsibilities couldn’t be further apart.

3) Who is responsible for an appraisal?

Line managers are ultimately responsible for the appraisal process within their employee management responsibilities.  However, for appraisals to be effective and not a document that sits on a shelf (or in the cloud) for the next 12 months, the appraisal process needs to be collectively owned by the manager, the employee and the HR department.

• The HR department is responsible for standardising the appraisal method, format, tools, information collection and storage across the business.
• The line manager is responsible for understanding the objectives and goals of the department they manage, the individual team members within it, their contribution, their skills and what they individually need to achieve to deliver the objectives of the department.
• The employee, without the employee’s significant input the appraisal process will fall at the first hurdle. The employee needs to feel engaged with the process and understand their personal development is important to the business which feeds through to their performance and the overall performance of the business.

Click here If you want to find out more about how Natural HR’s online HR software can support your business with performance management from HR to self-service

4) When do appraisals take place?

This is a hot topic in HR and business in general with answers ranging from informal day-to-day appraisal reviews to monthly to quarterly to half-yearly to once a year reviews to tick the HR box (or none at all!)

What works for one business, might not work for another and the same applies to your people after all everyone is individual.

One thing we suggest is doing them, and don’t do it once a year to tick the box.  Your people are important assets in your business, ensure they are engaged with your business, ensure they feel empowered to be part of a bigger picture, appraisals provide an opportunity to listen to your employee and listen to their requirements to be able to perform better.

5) Where do appraisals take place?

This is again down to the company, company values and company culture.  Appraisals are ultimately a conversation. Conversations can either be formal and set within a formal environment, or they could be in the local coffee shop.  Wherever you choose, choose somewhere away from the day-to-day environment, away from the wider team and somewhere you can converse clearly and openly.

Another suggestion for appraisals even in the digital world is to do them face-to-face wherever possible.  If you manage remote staff, then face-to-face reviews might not be something you can often do, but wherever you can, appraisals are best approached in person.

6) How long do appraisals have to take and how do you do them?

Again, this depends on the frequency you do them.  If you leave them in the filing cabinet all year, you will have a longer discussion.  The more regular you do appraisals, the easier and quicker they become. If they form part of regular one-to-ones, then there’s no need to diarise monthly appraisal meetings – they could be an additional 15 minutes as part of the regular work in progress catch up. If your organisation has a more formal performance management process, dedicated appraisal times might be required. Whatever frequency you choose, make sure you discuss progress and any barriers to progression. Review the objectives and the KPIs and check whether the objectives set are still valid, especially if appraisals are infrequent.

7) How do you actually deliver appraisals?

‘Doing appraisals’ doesn’t need to be scary. The less you think of appraisals as a ‘doing’ activity, the more they become part of your management style, the easier they become.

In most organisations, especially those with 50 employees or more, HR departments will (or should) deliver an overview of the appraisal process, and offer support to managers to deliver appraisals.

However, there can be tricky appraisals. Not all employees deliver time and time again to the expectations set by the organisation, and delivering negative feedback can be difficult.

Why are appraisals important to my business and why is it important to get right?

To summarise, appraisals are important conversations to align employee’s outputs, performance and personal development with the business strategy.

Appraisals whether formal or informal provide a framework for both employer and employee. A systematic approach to monitoring performance and employee engagement. Whatever process you choose, use good tools around it to support the overall requirements.

Take a look at Natural HR’s performance management module to find out how we could support your appraisal process.

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How Much Does a Business Appraisal and Valuation Cost?

A business valuation is a key component that is required for a successful company sale. Both buyers and sellers may use the appraisal as a starting point for a sale negotiation. How much does a business appraisal cost? The expense can vary from $5,000 to $20,000 or more.

If you’re considering a business sale, you need to understand the factors that drive the cost of an appraisal, the methods used to perform an appraisal, and how a business broker can help.

Understanding Valuation Approaches

A small business appraisal cost includes the appraiser’s compensation, and possibly additional fees paid to specialists. For example, a professional staffing company may provide expertise on compensation levels, and an IP attorney can be used to value a patent or copyright.

The valuation cost may be a flat fee, or based on an hourly rate. Here are some other factors that can impact an appraisal’s cost:

Larger and more complex businesses are more expensive to appraise. A single entity is less expensive to analyze than a holding company.

Capital structure: Does the firm have common and preferred stock outstanding? How many classes of securities exist?

A firm that operates in multiple countries requires more work, and the industry’s regulatory environment is also a factor.

Appraisals that require multiple valuation approaches are more expensive, and an appraiser may use all three of the methods outlined below:

Using The Income Approach

Business owners compare the cost of a particular asset with the revenue and profit generated by the asset. In a similar way, the income approach compares the benefits of owning the company (profits, increased value) with capital required and the risk of ownership.

Applying The Market Approach

The appraiser will compare the company’s value to recent sales of other businesses in the same industry. The report will also consider sales of other companies of a similar size (total revenue).

Considering The Asset Approach

The balance sheet lists a company’s assets and liabilities, and this approach adjusts assets and liabilities to fair market value. An appraiser will assess the balance sheet accounts, and analyze the equity balance.

If the company for sale provides a level of synergy with the buyer, a buyer is more likely to make a higher bid.

An appraiser is likely to promote their credentials to potential clients.

Reviewing Appraisal Standards And Credentials

Appraisers follow standards set by the Institute of Business Appraisers ( IBA ), and the American Society of Appraisers ( ASA ).

Qualified business appraisers comply with the Uniform Standards of Professional Appraisal Practice ( USPAP ), and experts who comply with USPAP requirements have a stronger justification for their findings.

Your appraiser may be an Accredited Senior Appraiser (ASA), Certified Business Appraiser (CBA), or a Certified Valuation Analyst (CVA). The AICPA, the organization for CPA professionals, offers the Accredited in Business Valuation (ABV) credential.

A business broker can help you find a qualified appraiser, and will explain the process in detail. The broker will also help you gather the records needed to complete the appraisal, and can work as a trusted advisor throughout the sale process.

How A Business Broker Can Help

The brokers at Raincatcher have worked on sales transactions with over 9,200 businesses, and they can provide a number of services to save you time and effort.

Meet with a Raincatcher broker, and have a detailed conversation about your business. A broker can identify strategies to improve your company’s performance before a sale, and those changes will increase the sale price of your business.

Finding A Qualified Buyer

Raincatcher’s brokers maintain a network of attorneys, accountants, and investors who are involved in sales transactions. Your broker can find potential buyers in far less time than an owner who is working alone. A broker can also determine if a purchaser has the financial means to buy your business.

Finding The Right Appraiser

Use Raincatcher’s Certified Business Valuation program to learn exactly how much your business is worth. This method is the highest standard of valuation, and the work is performed by a certified and accredited valuation appraiser.

The appraiser uses an unbiased approach, which removes any potential subjectivity, in order to reflect the true value of your business. Potential buyers and sellers are more likely to rely on this type of appraisal, and use it as a starting point for a negotiation.

You’ll need to provide a number of documents for the appraisal, including:

Financial statements for the past five years or more,

Forecasts and projections, including in your most recent planning efforts,

Organization charts, lists of products and services offered, and

Customer list, suppliers, and competitors in your industry.

Selling your business and obtaining an appraisal requires time and effort, and Raincatcher can make the process much easier.

Moving Forward With Confidence

Lean on the expertise of a broker during each step of the process, including price negotiation. Move forward with confidence, and sell your business for an attractive price. Talk with a broker at Raincatcher today to plan your sale .

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What Is a Performance Appraisal?

What is the purpose of performance appraisals, types of performance appraisals, what are some criticisms of performance appraisals.

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The Bottom Line

Performance appraisals in the workplace: use, types, criticisms.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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The term “performance appraisal” refers to the regular review of an employee’s job performance and overall contribution to a company. Also known as an annual review, employee appraisal, performance review or evaluation, a performance appraisal evaluates an employee’s skills, achievements, and growth, or lack thereof.

Companies use performance appraisals to give employees big-picture feedback on their work and to justify pay increases and bonuses, as well as  termination decisions. They can be conducted at any given time but tend to be annual, semiannual, or quarterly.

Key Takeaways

• A performance appraisal is a regular review of an employee’s job performance and contribution to a company.
• Performance appraisals are also called annual reviews, performance reviews or evaluations, or employee appraisals.
• Companies use performance appraisals to determine which employees have contributed the most to the company’s growth, review progress, and reward high-achieving workers.
• Although there are many different kinds of performance reviews, the most common is a top-down review in which a manager reviews their direct report.
• Employees who believe that the evaluation’s construction isn’t reflective of their company’s culture may feel dissatisfied with the appraisal process.

Performance appraisals are usually designed by human resources (HR) departments as a way for employees to develop in their careers. They provide individuals with feedback on their job performance, ensuring that employees are managing and meeting the goals expected of them and giving them guidance on how to reach those goals if they fall short.

Because companies have a limited pool of funds from which to award incentives, such as raises and  bonuses , performance appraisals help determine how to allocate those funds. They provide a way for companies to determine which employees have contributed the most to the company’s growth so that companies can reward their top-performing employees accordingly.

Performance appraisals also help employees and their managers create a plan for employee development through additional training and increased responsibilities, as well as to identify ways that the employee can improve and move forward in their career.

Ideally, the performance appraisal is not the only time during the year that managers and employees communicate about the employee’s contributions. More frequent conversations help keep everyone on the same page, develop stronger relationships between employees and managers, and make annual reviews less stressful.

Most performance appraisals are top-down, meaning that supervisors evaluate their staff with no input from the subject. But there are other types:

• Self-assessment : Individuals rate their job performance and behavior.
• Peer assessment : An individual’s work group or co-workers rate their performance.
• 360-degree feedback assessment : Includes input from an individual, supervisor, and peers.
• Negotiated appraisal : This newer trend utilizes a mediator and attempts to moderate the adversarial nature of performance evaluations by allowing the subject to present first. It also focuses on what the individual is doing right before any criticism is given. This structure tends to be useful during conflicts between subordinates and supervisors.

There are many performance appraisal apps that have been developed to help companies automate the evaluation process.

Performance appraisals are designed to motivate employees to reach and/or exceed their goals. But they do come with a lot of criticism.

An issue with performance appraisals is that differentiating individual and organizational performance can be difficult. If the evaluation’s construction doesn’t reflect the culture of a company or organization, it can be detrimental. Employees may report general dissatisfaction with their performance appraisal processes. Other potential issues include:

• Distrust of the appraisal can lead to issues between subordinates and supervisors or a situation in which employees merely tailor their input to please their employer.
• Performance appraisals can lead to the adoption of unreasonable goals that demoralize workers or incentivize them to engage in unethical practices.
• Some labor experts believe that the use of performance appraisals has led to lower use of merit- and  performance-based compensation.
• Performance appraisals may lead to unfair evaluations in which employees are judged not by their accomplishments but by their likability. They can also lead to managers giving underperforming staff a good evaluation to avoid souring their relationship.
• Unreliable raters can introduce a number of biases that skew appraisal results toward preferred characteristics or ones that reflect the rater’s preferences.
• Performance appraisals that work well in one culture or job function may not be useful in another.

What Are Performance Appraisals Used For?

Performance appraisals are used to review the job performance of an employee over some period of time. These reviews are used to highlight both strengths and weaknesses to improve future performance.

What Are the Benefits of a Performance Appraisal?

When executed correctly, performance appraisals can pay off significantly. Among other things, they are capable of boosting employee morale and engagement, clarifying expectations, helping to get the best out of staff, and incentivizing hard work and dedication.

It’s not just companies that benefit, either. Open lines of communication make it easier for employees to raise concerns, express themselves, find their right path, feel appreciated, and be rewarded when they do a good job.

When Should a Performance Appraisal Take Place?

Performance management is an ongoing process. Throughout the year, managers are encouraged to engage with employees to establish goals, note progress, and provide feedback. Formal reviews or appraisals often take place on a yearly or quarterly basis.

What Is a 360-Degree Appraisal?

Standard performance reviews include an employee and their manager or supervisor. The 360-degree version also solicits input from the employee’s colleagues or co-workers.

Communication between employees and their manager or supervisor can be very rewarding. Performance appraisals are capable of boosting morale and output, benefiting all parties.

That’s assuming they go well, though. Sadly, many performance appraisals aren’t executed in the most effective way. In many cases, they may be rushed or simply follow a set framework that perhaps doesn’t always benefit every type of industry or person. Poorly handled appraisals can be counterproductive. Without a bespoke approach and careful consideration of how to structure meetings and set reasonable targets, the performance appraisal process can have its drawbacks.

Harvard Business Review. “ Appraisal of What Performance? ”

Mint HR. “ Performance Appraisal .”

University of California, Rausser College of Natural Resources. “ Performance Appraisal .”

Regent University. " Why Employees Dislike Performance Appraisals ."

U.S. Bureau of Labor Statistics. “ Appraising the Performance of Performance Appraisals .”

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If you’re in business for yourself, running what amounts to a one-person show, it’s safe to say that you will have a good idea of how well you’re doing. However, if your business has anything from 1,000 employees to just one person, there will always be a question of how well they perform. That’s why it’s vital to have an objective means of evaluating employee performance . So today, we’re talking about performance appraisals. 

What is a Performance Appraisal?

A performance appraisal is a systematic and periodic process of measuring an individual’s work performance against the established requirements of the job. It’s a subjective evaluation of the employee’s strengths and weaknesses, relative worth to the organization, and future development potential.

Performance appraisals are also called performance evaluations, performance reviews , development discussions, or employee appraisals.

If you conduct a successful performance appraisal, you can get a handle on what the employee does best and identify areas that require improvement. Appraisals also come in handy for deciding how to fill new positions in the company structure with existing employees.

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Types of Performance Appraisals

Performance appraisals can be broken down into four distinct significant types:

1. 360-Degree Appraisal

The manager gathers information on the employee’s performance, typically by questionnaire, from supervisors, co-workers, group members, and self-assessment.

2. Negotiated Appraisal

This type of appraisal uses a mediator to help evaluate the employee’s performance, with a greater emphasis on the better parts of the employee’s performance.

3. Peer Assessment

The team members, workgroup, and co-workers are responsible for rating the employee’s performance.

4. Self-Assessment

The employees rate themselves in categories such as work behavior, attitude, and job performance.

Note that some organizations use several appraisal types during the same review. For instance, a manager could consult with the employee’s peers and assign a self-assessment to the employee. It doesn’t have to be a case of either/or.

How Performance Appraisals Work?

Human resources (HR) departments typically create performance appraisals as a tool for employees to advance in their careers. They give people feedback on how well they are doing in their jobs, ensuring that they are managing and achieving the goals set for them and assisting them if they fall short.

Performance evaluations assist in determining how to distribute a company's limited budget for giving out incentives, such as raises and bonuses. In addition, they give businesses a tool to identify the workers who have made the most contributions to their expansion so that they may appropriately reward their top performers.

Performance reviews also assist employees and their managers in identifying areas for improvement and career advancement, as well as in developing a strategy for the employee's development through extra training and more responsibility.

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Methods of Performance Appraisals

Performance appraisals come in many forms. Managers and human resources staff responsible for these appraisals need to choose the best methods based on the size of their organization and what sorts of responsibilities the employees fulfill.

1. 720-Degree Feedback

You could say that this method doubles what you would get from the 360-degree feedback! The 720-degree feedback method collects information not only from within the organization but also from the outside, from customers, investors, suppliers, and other financial-related groups.

2. The Assessment Center Method

This method consists of exercises conducted at the company's designated assessment center, including computer simulations, discussions, role-playing, and other methods. Employees are evaluated based on communication skills, confidence, emotional intelligence, mental alertness, and administrative abilities. The rater observes the proceedings and then evaluates the employee's performance at the end.

3. Behaviorally Anchored Rating Scale (BARS)

This appraisal measures the employee’s performance by comparing it with specific established behavior examples. Each example has a rating to help collect the data.

4. Checklist Method

This simple method consists of a checklist with a series of questions that have yes/no answers for different traits.

5. Critical Incidents Method

Critical incidents could be good or bad. In either case, the supervisor takes the employee’s critical behavior into account.

6. Customer/Client Reviews

This method fits best for employees who offer goods and services to customers. The manager asks clients and customers for feedback, especially how they perceive the employee and, by extension, the business.

7. Field Review Method

An HR department or corporate office representative conducts the employee's performance evaluation.

8. Forced Choice Method

This method is usually a series of prepared True/False questions.

9. General Performance Appraisal

This method involves continuous interaction between the manager and the employee, including setting goals and seeing how they are met.

10. Human Resource Accounting Method

Alternately called the “accounting method” or “cost accounting method,” this method looks at the monetary value the employee brings to the company. It also includes the company’s cost to retain the employee.

11. Management By Objective (MBO)

This process involves the employee and manager working as a team to identify goals for the former to work on. Once the goals are established, both parties discuss the progress the employee is making to meet those goals. This process concludes with the manager evaluating whether the employee achieved the goal.

12. Performance Tests and Observations

This method consists of an oral test that measures employees' skills and knowledge in their respective fields. Sometimes, the tester poses a challenge to the employee and has them demonstrate their skills in solving the problem.

13. Project Evaluation Review

This method involves appraising team members at the end of every project, not the end of the business year.

14. Rating Scales

These ratings measure dependability, initiative, attitude, etc., ranging from Excellent to Poor or some similar scale. These results are used to calculate the employee's overall performance.

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What are Performance Appraisals Used For?

Performance appraisals serve a dual purpose for both organizations and employees. 

• For organizations: employee assessments provide insight into an employee's contribution, enabling management to improve working conditions, address behavioral issues, recognize employee talents, support skill and career development, and improve strategic decision-making .
• For employees: performance reviews are a way to recognize and thank them for their achievements, find opportunities for promotions or bonuses, help them get training or education to advance their careers, find areas where they can improve, encourage and involve them in their career development, and start conversations about long-term goals.

Performance appraisal also aims to:

• Provide helpful information to help make decisions regarding transfers, promotions, terminations, etc.
• Supply the necessary data to identify employee training and development program requirements.
• Help make confirmation/acceptance decisions regarding employees who have completed a probationary period.
• Help make decisions regarding raising an employee's salary, offering incentives, or changing variable pay.
• Clarify expectations and facilitate communication between managers and subordinates.
• Help employees realize their whole potential performance level.
• Collect relevant employee data and keep the records for various future organizational purposes.

Benefits of Performance Appraisals

Here is a list of advantages that performance appraisals bring to the table:

• They help supervisors plan promotions for solid, performing employees and dismiss inefficient workers.
• They help the organization decide how to compensate the employees best. Also, companies can use performance appraisal records to help determine extra benefits and allowances.
• They can call attention to employee weaknesses and help set up training programs in-house.
• The performance appraisals can help make changes in the selection process which inevitably help hire better employees.
• Performance reviews effectively communicate the employee's performance status and provide a great way to give feedback on how the employee is doing at their job.
• Performance evaluations are a great motivational tool, providing a snapshot of the employee's efficiency. This snapshot, in turn, can incentivize the individual to improve their performance.

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Suggested Tips and Techniques For Performance Appraisals

Here are three valuable tips and techniques to maximize the effectiveness of your performance appeals.

• Document your appraisal sessions: Document your employee performance appraisal meetings and store the notes in your go-to database system. By documenting and keeping these notes, you will have easy access when you need them to make decisions about an employee or conduct follow-up meetings.
• Use outlines: Create an outline template to be used for all your company’s performance appraisals. This practice promotes a consistent company-wide review structure and helps employees better prepare for the appraisal meeting.
• Check in with your employees more frequently: Nothing is more dispiriting and frustrating for an employee who performs their jobs in a particular way, only to be told at the end of the year that they’ve been doing it all wrong and it will affect their performance reviews. Teams need to know if they’re doing well and on the right track, so consider conducting performance appraisals at shorter intervals.

Criticism of Performance Appraisals

Employees are encouraged to meet or surpass their goals through performance reviews. Nonetheless, they are subject to a lot of criticism. 

• Differentiating between individual and organisational performance in performance reviews can be challenging. It can be harmful if an evaluation's design doesn't consider the organisation or company's culture. 
• Performance evaluations can result in adopting unreasonable goals that demoralise employees or encourage them to engage in unethical practices.
• Distrust of the appraisal can lead to problems between subordinates and supervisors or a situation in which employees tailor their input to please their employer.
• According to some labour analysts, the usage of merit- and performance-based pay has decreased due to the use of performance reviews.
• Employees may receive biassed evaluations due to performance reviews focusing more on their likeability than accomplishments.
• Unreliable raters can introduce a number of biases that tilt assessment results towards desired traits or ones that reflect the rater's preferences, which can result in managers giving underperforming personnel a favourable evaluation in order to preserve their connection.
• Performance reviews that are effective for one culture or job function might not be applicable to another.

What Are Performance Appraisals Used For?

A performance appraisal has two purposes: to aid the organisation's assessment of the value and productivity that different employees bring and to aid the company’s employees in growing in their respective jobs.

Company Benefit

Employee evaluations can influence an organisation's performance . They enable firms to:

• Identify areas where management may enhance working circumstances in order to raise productivity and work quality. They give insight into how people are contributing.
• Deal with behavioural problems before they affect the efficiency of your department.
• Assist employees in their skills and career development.
• Enhance strategic decision-making in scenarios that call for layoffs, succession planning, or internally filling available posts.
• Motivate employees to contribute more by recognising their talents and skills.

Employee Benefit 

Performance reviews should benefit the employees who get them. The knowledge obtained by evaluating and debating an employee's performance can help you:

• Acknowledge and thank an employee for their accomplishments and contributions.
• Be aware of the chance for a promotion or bonus.
• Recognize and advocate for the need for extra education or training to advance one's profession.
• Identify the precise areas where skills might be strengthened.
• Encourage an employee to feel invested in and active in their professional development.
• A candid discussion of a worker's long-term objectives.

When Should a Performance Appraisal Take Place?

The process of performance management always continues. Managers are urged to meet staff members to set goals, track development, and offer yearly feedback. Although they can be carried out at any time, they usually happen annually, bi-annually, or quarterly.

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The more knowledge and skills you possess, the easier it is to deliver an outstanding performance on the job. And, of course, an excellent performance appraisal gets you noticed, promoted, and, most likely, better compensation.

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1. How often should performance appraisals be conducted?

The frequency of performance appraisals can vary depending on organizational practices, industry norms, and the preferences of managers and employees. In many companies, performance appraisals are conducted annually as part of the formal performance management process. However, some organizations may opt for more frequent appraisals, such as quarterly or semi-annually.

2. What are the challenges of performance appraisal?

Some common challenges of performance appraisals include; subjectivity and bias, overemphasis on recent events, time constraints, negative perception, lack of specificity, goal setting and measurement issues, inadequate training for managers, focus on negatives only, link to compensation, and resistance to change.

3. How effective are appraisals?

The effectiveness of performance appraisals can vary based on how well they are designed, implemented, and utilized within an organization. When adequately executed, performance appraisals can be a valuable tool.

4. What are the 5 performance ratings?

While the specific names and descriptions of performance ratings may vary across organizations, a standard five-point scale is as follows:

• Outstanding/Exceeds Expectations
• Above Expectations/Exemplary/Very Good
• Meets Expectations/Proficient/Good
• Needs Improvement/Developing/Partially Meets Expectations
• Unsatisfactory/Does Not Meet Expectations

5. How do I write a good appraisal for myself?

Writing a self-appraisal can be a valuable opportunity to reflect on your performance, achievements, and areas for growth. Here are some tips to help you write a good self-appraisal:

• Start Early
• Review Goals and Objectives
• Be Honest and Objective
• Use Data and Metrics
• Focus on Accomplishments
• Discuss Challenges and Solutions
• Use Positive Language
• Align with Company Values
• Include Learning and Development
• Seek Feedback
• Review your self-appraisal for clarity
• Avoid Overconfidence

6. What not to say in a performance appraisal meeting?

During an appraisal meeting, it's essential to be mindful of what you say to maintain a positive and constructive atmosphere. You should avoid being offensive, excessive self-criticism, gossiping and making excuses, blaming others, and comparing yourself negatively.

7. What if I am unhappy with my appraisal?

If you are unhappy with your appraisal, it's important to handle the situation professionally and constructively. You should take time to reflect, clarify expectations, express your concerns and ask for specific feedback. You can also provide evidence, discuss development plans and seek opportunities for improvement.

8. How do I ask for more hike in performance appraisal?

Asking for a higher hike during the appraisal process requires careful preparation and effective communication. Compile a list of your accomplishments and exceptional performance during the appraisal period. You can also research industry salary benchmarks to understand what is reasonable to ask for. You should also demonstrate how your performance has positively impacted the team, department, or company's success. Keep in mind that not all salary requests may be granted, but having a well-prepared case will increase your chances of a positive outcome.

About the Author

John Terra lives in Nashua, New Hampshire and has been writing freelance since 1986. Besides his volume of work in the gaming industry, he has written articles for Inc.Magazine and Computer Shopper, as well as software reviews for ZDNet. More recently, he has done extensive work as a professional blogger. His hobbies include running, gaming, and consuming craft beers. His refrigerator is Wi-Fi compliant.

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The purpose of a performance appraisal

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Performance appraisal examples

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5 Modern method of performance appraisal

What is a performance appraisal.

A performance appraisal is the periodic assessment of an employee’s job performance as measured by the competency expectations set out by the organization.

The performance assessment often includes both the core competencies required by the organization and also the competencies specific to the employee’s job.

The appraiser, often a supervisor or manager, will provide the employee with constructive, actionable feedback based on the assessment. This in turn provides the employee with the direction needed to improve and develop in their job.

Based on the type of feedback , a performance appraisal is also an opportunity for the organization to recognize employee achievements and future potential.

The purpose of a performance appraisal is two-fold: It helps the organization to determine the value and productivity that employees contribute, and it also helps employees to develop in their own roles.

Benefit for organization

Employee assessments can make a difference in the performance of an organization. They provide insight into how employees are contributing and enable organizations to:

• Identify where management can improve working conditions in order to increase productivity and work quality.
• Address behavioral issues before they impact departmental productivity.
• Encourage employees to contribute more by recognizing their talents and skills
• Support employees in skill and career development
• Improve strategic decision-making in situations that require layoffs, succession planning, or filling open roles internally

Benefit for employee

Performance appraisals are meant to provide a positive outcome for employees. The insights gained from assessing and discussing an employee’s performance can help:

• Recognize and acknowledge the achievements and contributions made by an employee.
• Recognize the opportunity for promotion or bonus.
• Identify and support the need for additional training or education to continue career development.
• Determine the specific areas where skills can be improved.
• Motivate an employee and help them feel involved and invested in their career development.
• Open discussion to an employee’s long-term goals.

How to organize a performance appraisal process

Conducting a performance review with an employee requires skill and training on the part of the appraiser. The negative perception that is often associated with the performance appraisal is due in part to a feeling of being criticized during the process.

A performance appraisal is meant to be the complete opposite. Often, the culprit is in the way the appraisal is conducted via the use of language.

The way the sender of a message uses language determines how the other person interprets the message once received. This can include tone of voice, choice of words, or even body language.

Because a performance appraisal is meant to provide constructive feedback, it is crucial that appropriate language and behavior are used in the process.

Human Resources (HR) are the support system for managers and supervisors to be trained in tactfully handling the appraisal process.

The performance appraisal process:

• The assessment process is usually facilitated by Human Resources, who assist managers and supervisors in conducting the individual appraisals within their departments.
• An assessment method should be established.
• Required competencies and job expectations need to be drafted for each employee.
• Individual appraisals on employee performance are conducted.
• A one on one interview is scheduled between the manager and employee to discuss the review.
• Future goals should be discussed between employee and manager.
• A signed-off version of the performance review is archived.
• Appraisal information is utilized by human resources for appropriate organizational purposes, such as reporting, promotions, bonuses or succession planning.

Let’s take a look at one example of a Manager speaking to an employee during a performance appraisal. Below are three versions of the same example.

Compare the difference in language and behavior and how it can change the end-result:

1. An appropriate appraisal example with mixed feedback

“We can start the review by looking at how each project went for you this quarter. Does that sound OK? First, every project you have worked on in the last four months has met the expected deadline and were all within their budgets. I see one project here was even early. They were all implemented successfully. Well done. You have succeeded in the criteria expected of a Project Manager here at ABC Company. Let’s take a look at a few areas where you might be able to develop your project management skills further. In Project A, B, and C, a few team members expressed that they were unsure what to begin working on in the first few meetings and felt that they were engaging in their tasks a bit late. When they tried to express this in later meetings, they felt there was hostility towards them. For upcoming Projects D, E, and F, is there anything that can be done to get team members up and running more quickly? Could more detailed task planning be completed prior to the project kick-off?”

Debrief : This example removes the errors from the first example and puts them in a more constructive light.

• The appraisal begins by involving the employee and making them feel like a valued part of the process.
• The appraiser focuses on measurable outcomes, such as each individual project, instead of broad, baseless generalizations.
• Positives are the focus of the assessment.
• Areas for improvement are offered in a constructive and neutral format by referring to specific events in the employee’s day-to-day tasks.
• The employee is given the opportunity to problem-solve the situation and contribute to their own sense of self-development.
• Constructive solutions are offered so the employee has a clear idea on what they can do better next time.

2. An inappropriate negative appraisal example

“Let’s talk about some of the problems. You are never proactive when it comes to the start of a new project. Things are left too late and there are often complaints. I have heard that your attitude has been less than positive during project meetings. You seem to have things going on at home right now, but they shouldn’t be intruding on your work.”

This example is extreme, but it conveys most of the errors that can occur in a performance review.

• The appraisal begins with a negative. It has been shown that starting with the positives can set the tone for the appraisal and helps employees feel more receptive to feedback.
• The appraiser speaks in a negative, accusatory language and bases the assessment on assumption instead of measured facts. An appraisal needs to be based on measured facts.
• The appraiser makes the discussion personal; a performance review should remain focused on the contributions of the employee to the job and never be about the individual as a person.
• Phrases like “ you are ” or “ you always ” are generalizations about the employee; a performance appraisal needs to be about specific contributions to specific job tasks.

3. An appropriate appraisal example for underperformers

“I wanted to talk to you today about your performance during the last quarter. Looking at the completed project schedules and project debriefs here, I see that each of the five projects was kicked off late. Team members reported having trouble getting the resources and information they needed to start and complete their tasks. Each project was delivered a week or more late and had considerable budget creep. Project A was over by $7000. Project B was over by $9,000, for example. These budget overages were not authorized. I think we really have potential to turn this around and I really want to see you succeed. The role of Project Manager requires you to kick-off projects on-time, make sure your team members have the resources they need, and it’s crucial that any budget issues or delays are discussed with myself or the other Manager. For the upcoming projects this month, I’d like you to draft a project plan one week prior to any project kick-off. We can go over it together and figure out where the gaps might be. Did you have any suggestions on how you might be able to improve the punctuality of your projects or effectiveness of how they are run?”

Debrief : This example deals with an employee who seems to be struggling. The appraiser unfortunately has a lot of negative feedback to work through, but has successfully done so using appropriate language, tone and examples:

• The feedback does not use accusatory language or tone, nor does it focus on the person. This is especially important at the start of a performance review when the topic is being introduced. Being accusatory can make an employee feel uncomfortable, upset or defensive and set the wrong tone for the rest of the review. Comments should remain focused on the employee’s work.
• The comments are constructive and specific. The appraiser uses specific examples with evidence to explain the poor performance and does not make general, unsubstantiated comments. Making general, broad comments like “Your projects have a lot of problems and are always late” are unfair as they cannot be proven. The tone also creates hostility and does not help the employee to solve the problem.
• The appraiser offers a positive comment about improving the situation and also a specific solution to improve the performance. The point of a performance review is to motivate and help an employee, not cut them down.
• The appraiser asks for the input of the employee on how to solve the problem. This empowers the employee to become more involved in their skill development and ends a negative review on a positive note.

4. The inflated appraisal example

“I don’t think we have too much to talk about today as everything seems just fine. Your projects are always done on time and within budget. I’m sure you made the right decisions with your team to achieve all of that. You and I definitely think alike when it comes to project management. Keep up the great work.”

Debrief : This example appears like a perfect performance appraisal, but it’s actually an example of how to inappropriate:

• The feedback glosses over any specifics regarding the employee’s actual work and instead offers vague, inflated comments about everything being great. Feedback needs to refer to specific events.
• Any mention of trouble on the team is ignored. A performance review needs to discuss performance issues before they become serious later on.
• The appraiser compares the employee to himself. This could be referred to as the “halo effect”, where the appraiser allows one aspect of the employee to cloud his or her judgement.
• Nobody is perfect; every appraisal should offer some form of improvement that the employee can work towards, whether it is honing a skill or learning a new skill.

Performance Appraisal Methods

There are many ways an organization can conduct a performance appraisal, owing to the countless different methods and strategies available.

In addition, each organization may have their own unique philosophy making an impact on the way the performance assessment is designed and conducted.

A performance review is often done annually or semi-annually at the minimum, but some organizations do them more often.

There are some common and modern appraisal methods that many organizations gravitate towards, including:

1. Self-evaluation

In a self-evaluation assessment, employees first conduct their performance assessment on their own against a set list of criteria.

The pro is that the method helps employees prepare for their own performance assessment and it creates more dialogue in the official performance interview.

The con is that the process is subjective, and employees may struggle with either rating themselves too high or too low.

2. Behavioral checklist

A Yes or No checklist is provided against a series of traits. If the supervisor believes the employee has exhibited a trait, a YES is ticked.

If they feel the employee has not exhibited the trait, a NO is ticked off. If they are unsure, it can be left blank.

The pro is the simplicity of the format and its focus on actual work-relate tasks and behaviors (ie. no generalizing).

The con is that there is no detailed analysis or detail on how the employee is actually doing, nor does it discuss goals.

3. 360-degree feedback

This type of review includes not just the direct feedback from the manager and employee, but also from other team members and sources.

The review also includes character and leadership capabilities.

The pro is that it provides a bigger picture of an employee’s performance.

The con is that it runs the risk of taking in broad generalizations from outside sources who many not know how to provide constructive feedback .

4. Ratings scale

A ratings scale is a common method of appraisal. It uses a set of pre-determined criteria that a manager uses to evaluate an employee against.

Each set of criteria is weighted so that a measured score can be calculated at the end of the review.

The pro is that the method can consider a wide variety of criteria, from specific job tasks to behavioral traits. The results can also be balanced thanks to the weighting system. This means that if an employee is not strong in a particularly minor area, it will not negatively impact the overall score.

The con of this method is the possible misunderstanding of what is a good result and what is a poor result; managers need to be clear in explaining the rating system.

5. Management by objectives

This type of assessment is a newer method that is gaining in popularity. It involves the employee and manager agreeing to a set of attainable performance goals that the employee will strive to achieve over a given period of time.

At the next review period, the goals and how they have been met are reviewed, whilst new goals are created.

The pro of this method is that it creates dialogue between the employee and employer and is empowering in terms of personal career development.

The con is that it risks overlooking organizational performance competencies that should be considered.

Ivan Andreev

Senior Associate

Ivan is a dedicated and versatile professional with over 12 years of experience in online marketing and a proven track record of turning challenges into opportunities. As a business development assistant to the CEO at Valamis, Ivan works diligently to improve internal processes and explore new possibilities for the company.

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Real Estate Appraisal Business Plan Template & Guidebook

Financing a real estate appraisal business is no small feat. This #1 Real Estate Appraisal Business Plan Template & Guidebook offers guidance on the process of structuring a business plan, as well as practical advice for staying ahead of the competition. It's an essential resource for any aspiring real estate appraiser looking to up their game.

Get worry-free services and support to launch your business starting at $0 plus state fees.

• How to Start a Real Estate Appraisal Business [11+ Steps]

How to Write a Real Estate Appraisal Business Plan in 7 Steps:

1. describe the purpose of your real estate appraisal business..

The first step to writing your business plan is to describe the purpose of your real estate appraisal business. This includes describing why you are starting this type of business, and what problems it will solve for customers. This is a quick way to get your mind thinking about the customers’ problems. It also helps you identify what makes your business different from others in its industry.

It also helps to include a vision statement so that readers can understand what type of company you want to build.

Here is an example of a purpose mission statement for a real estate appraisal business:

Our mission at ABC Real Estate Appraisals is to provide fair and reliable appraising services to our clients that are derived from our experience, knowledge of the market, and respect for all parties involved. We strive to continuously expand our services through innovation and best practices that are tailored to each customer, while respecting the value of their property.

2. Products & Services Offered by Your Real Estate Appraisal Business.

The next step is to outline your products and services for your real estate appraisal business. 

When you think about the products and services that you offer, it's helpful to ask yourself the following questions:

• What is my business?
• What are the products and/or services that I offer?
• Why am I offering these particular products and/or services?
• How do I differentiate myself from competitors with similar offerings?
• How will I market my products and services?

You may want to do a comparison of your business plan against those of other competitors in the area, or even with online reviews. This way, you can find out what people like about them and what they don’t like, so that you can either improve upon their offerings or avoid doing so altogether.

3. Build a Creative Marketing Stratgey.

If you don't have a marketing plan for your real estate appraisal business, it's time to write one. Your marketing plan should be part of your business plan and be a roadmap to your goals. 

A good marketing plan for your real estate appraisal business includes the following elements:

Target market

• Who is your target market?
• What do these customers have in common?
• How many of them are there?
• How can you best reach them with your message or product?

Customer base 

• Who are your current customers? 
• Where did they come from (i.e., referrals)?
• How can their experience with your real estate appraisal business help make them repeat customers, consumers, visitors, subscribers, or advocates for other people in their network or industry who might also benefit from using this service, product, or brand?

Product or service description

• How does it work, what features does it have, and what are its benefits?
• Can anyone use this product or service regardless of age or gender?
• Can anyone visually see themselves using this product or service?
• How will they feel when they do so? If so, how long will the feeling last after purchasing (or trying) the product/service for the first time?

Competitive analysis

• Which companies are competing with yours today (and why)? 
• Which ones may enter into competition with yours tomorrow if they find out about it now through word-of-mouth advertising; social media networks; friends' recommendations; etc.)
• What specific advantages does each competitor offer over yours currently?

Marketing channels

• Which marketing channel do you intend to leverage to attract new customers?
• What is your estimated marketing budget needed?
• What is the projected cost to acquire a new customer?
• How many of your customers do you instead will return?

Form an LLC in your state!

4. Write Your Operational Plan.

Next, you'll need to build your operational plan. This section describes the type of business you'll be running, and includes the steps involved in your operations. 

In it, you should list:

• The equipment and facilities needed
• Who will be involved in the business (employees, contractors)
• Financial requirements for each step
• Milestones & KPIs
• Location of your business
• Zoning & permits required for the business

What equipment, supplies, or permits are needed to run a real estate appraisal business?

• License and/or certifications
• Computer/tablet
• Software for appraisals, property analysis, and report writing
• Digital camera/camera
• Office supplies (printer, paper, pens, etc.)
• Business cards
• Insurance (professional liability)

5. Management & Organization of Your Real Estate Appraisal Business.

The second part of your real estate appraisal business plan is to develop a management and organization section.

This section will cover all of the following:

• How many employees you need in order to run your real estate appraisal business. This should include the roles they will play (for example, one person may be responsible for managing administrative duties while another might be in charge of customer service).
• The structure of your management team. The higher-ups like yourself should be able to delegate tasks through lower-level managers who are directly responsible for their given department (inventory and sales, etc.).
• How you’re going to make sure that everyone on board is doing their job well. You’ll want check-ins with employees regularly so they have time to ask questions or voice concerns if needed; this also gives you time to offer support where necessary while staying informed on how things are going within individual departments too!

6. Real Estate Appraisal Business Startup Expenses & Captial Needed.

This section should be broken down by month and year. If you are still in the planning stage of your business, it may be helpful to estimate how much money will be needed each month until you reach profitability.

Typically, expenses for your business can be broken into a few basic categories:

Startup Costs

Startup costs are typically the first expenses you will incur when beginning an enterprise. These include legal fees, accounting expenses, and other costs associated with getting your business off the ground. The amount of money needed to start a real estate appraisal business varies based on many different variables, but below are a few different types of startup costs for a real estate appraisal business.

Running & Operating Costs

Running costs refer to ongoing expenses related directly with operating your business over time like electricity bills or salaries paid out each month. These types of expenses will vary greatly depending on multiple variables such as location, team size, utility costs, etc.

Marketing & Sales Expenses

You should include any costs associated with marketing and sales, such as advertising and promotions, website design or maintenance. Also, consider any additional expenses that may be incurred if you decide to launch a new product or service line. For example, if your real estate appraisal business has an existing website that needs an upgrade in order to sell more products or services, then this should be listed here.

7. Financial Plan & Projections

A financial plan is an important part of any business plan, as it outlines how the business will generate revenue and profit, and how it will use that profit to grow and sustain itself. To devise a financial plan for your real estate appraisal business, you will need to consider a number of factors, including your start-up costs, operating costs, projected revenue, and expenses. 

Here are some steps you can follow to devise a financial plan for your real estate appraisal business plan:

• Determine your start-up costs: This will include the cost of purchasing or leasing the space where you will operate your business, as well as the cost of buying or leasing any equipment or supplies that you need to start the business.
• Estimate your operating costs: Operating costs will include utilities, such as electricity, gas, and water, as well as labor costs for employees, if any, and the cost of purchasing any materials or supplies that you will need to run your business.
• Project your revenue: To project your revenue, you will need to consider the number of customers you expect to have and the average amount they will spend on each visit. You can use this information to estimate how much money you will make from selling your products or services.
• Estimate your expenses: In addition to your operating costs, you will need to consider other expenses, such as insurance, marketing, and maintenance. You will also need to set aside money for taxes and other fees.
• Create a budget: Once you have estimated your start-up costs, operating costs, revenue, and expenses, you can use this information to create a budget for your business. This will help you to see how much money you will need to start the business, and how much profit you can expect to make.
• Develop a plan for using your profit: Finally, you will need to decide how you will use your profit to grow and sustain your business. This might include investing in new equipment, expanding the business, or saving for a rainy day.

Frequently Asked Questions About Real Estate Appraisal Business Plans:

Why do you need a business plan for a real estate appraisal business.

A business plan for a real estate appraisal business is essential in order to help you understand the potential success of your business and create a roadmap for achieving it. A business plan will provide important information about your target market, marketing and sales strategies, pricing, operations, capital requirements and other essential elements of running a successful business. It can help you determine the viability of your appraisal business, obtain financing to start or grow the existing business, and anticipate challenges that may arise during the process. Additionally, a sound plan can be shared with potential partners or investors to get them on board with your vision.

Who should you ask for help with your real estate appraisal business plan?

You should contact a business consultant or mentor who specializes in real estate appraisals and has experience developing business plans. Additionally, your local Small Business Administration or SCORE office may be able to provide helpful resources and advice.

Can you write a real estate appraisal business plan yourself?

Yes, you can write your own real estate appraisal business plan. The first step is to assess the business opportunities in your local area and decide which services you will offer to meet the needs of the local market. Research the competition, identify potential customers, and determine how you will be able to differentiate yourself in order to acquire a share of the market. Estimate business costs and potential profits, develop a pricing structure that is competitive yet profitable, and create a marketing plan to reach potential customers. As you create your business plan, consider legal issues such as licensing and insurance requirements as well as any additional regulations or professional standards that apply in your area or industry. Having an understanding of these factors will help you to minimize risk and ensure that your real estate appraisal business is profitable.

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I'm Nick, co-founder of newfoundr.com, dedicated to helping aspiring entrepreneurs succeed. As a small business owner with over five years of experience, I have garnered valuable knowledge and insights across a diverse range of industries. My passion for entrepreneurship drives me to share my expertise with aspiring entrepreneurs, empowering them to turn their business dreams into reality.

Through meticulous research and firsthand experience, I uncover the essential steps, software, tools, and costs associated with launching and maintaining a successful business. By demystifying the complexities of entrepreneurship, I provide the guidance and support needed for others to embark on their journey with confidence.

From assessing market viability and formulating business plans to selecting the right technology and navigating the financial landscape, I am dedicated to helping fellow entrepreneurs overcome challenges and unlock their full potential. As a steadfast advocate for small business success, my mission is to pave the way for a new generation of innovative and driven entrepreneurs who are ready to make their mark on the world.

How to Write SMART Employee Review Goals For The Performance Appraisal

Posted by Julie • September 18, 2018 (Last modified August 7, 2023) • 8 min read

Most organizations have some sort of performance appraisal system in place to evaluate decisions related to promotions, salary hikes and professional development. To execute that, a set of expectations is established against which employees’ performance is measured. That’s where the importance of writing SMART performance evaluation goals comes in.

What are SMART Goals?

SMART goals, which stands for specific, measurable, achievable, relevant and timely, are used in employee evaluations as a way to enhance performance management. SMART goals are a step-by-step process to effectively formulate and achieve goals and can be used in conjunction with evaluations and performance reviews.

Specific Employee Review Goals for The Performance Appraisal

Professional goals should have clearly defined output expectations. This can be in terms of what is to be delivered, how much is to be delivered, and what the standards are for the deliverables that are to be measured. Let’s take the example of a goal where an employee is expected to update an existing report on emerging trends in e-commerce.

The above goal lacks specificity, since there is no clear definition of what is meant by “update”. A better way to write the goal is “Update the report on emerging trends in e-commerce with at least two new trends that aren’t listed in the current report.” You can take it a step further by identifying a trend as something that has a tangible outcome on your business objectives, for instance, trends that impact the way shopping habits are changing. The goal now has performance metrics that make it more objective.

The performance goal should also include how the completion of the goal will be measured. Two common ways that a business output can be measured are quality and cost-effectiveness.

Accuracy of new information and effectiveness of new information can determine the quality of the work produced.

Cost-effectiveness

The efficiency of a task measures its cost-effectiveness. For instance, the cost-effectiveness of the goal in the previous example can be measured by calculating the number of hours taken when updating the report. Thus, the revised goal could read “Update the report on emerging trends in e-commerce with at least two new trends that aren’t listed in the report, and try to come up with new research methods aimed at saving time.”

The outcome of a performance goal should be under employees’ control. External factors should not play a role in whether a goal is considered successfully achieved or not. For instance, in our example of report update as a goal, it will be unfair to not consider unavailability of substantial data to evaluate trends. A fair performance goal would be “Update the report on emerging trends in e-commerce with at least two new trends that aren’t listed in the report, and try to come up with new research methods aimed at saving time. If statistically significant data is not found for compiling trends, give sources referenced for research. Sources should be reputable.”

For performance goals to be beneficial for employees and the organization, they should be relevant to employees’ job responsibilities, thus leading to their professional development, and relevant to the short- or long-term goals of the organization.

As an example, giving the responsibility of updating an existing report to a content writer in your organization makes sense. It is aligned with the work that the employee is already doing, which is mostly research-based. The goal makes even more sense if your organization has a projection of increasing its sales. By identifying new trends, you can come up with new marketing strategies or entirely new products to attract more customers.

This is to ensure that a goal is met in a timely manner. Our example performance goal can thus be updated in the following manner: “Update the report on emerging trends in e-commerce with at least two new trends that aren’t listed in the report and try to come up with new research methods aimed at saving time. If statistically significant data is not found for compiling trends, give sources referenced for research. Sources should be reputable. The first draft of the report is to be sent to Manager A by June 15.”

Other Examples of SMART Performance Goals

Vague goal: “Learn and implement new social media tactics”

SMART goal: “Learn four new social media tactics (specific) and implement them on Facebook and Twitter (specific) by the end of this month (timely). Document the effectiveness of the tactics in terms of users reached, users engaged and new users engaged (measurable).”

It is assumed that the goal is achievable since the employee has access to the required resources, which include an Internet connection and relevant books on the topic.

Vague goal: “Increase employee productivity”

SMART goal: “Train the team such that at least 85 percent of department goals (specific and measurable) for this fiscal year are met (timely).”

Here again, it is assumed that the manager has access to all necessary resources, which could include finances to hold regular educational seminars and approvals from relevant authorities.

Slightly vague goal: “Create 100 new blog posts in the next four months”

This goal is not measurable in terms of effectiveness, which makes it less relevant.

SMART goal : “Create 100 new blog posts in the next four months. At least 50 blog posts should be related to current trends in the industry so as to increase chances of engagement.”

In the last example, it is very possible to make the goal unattainable by linking measurement to the amount of traffic that the blog posts fetch. Unless the employee is responsible for content marketing too, reach of content is outside the factors that the employee has control over.

Implementing SMART goals across the organization, departments, and individual team members creates alignment, boosts job performance, and improves annual reviews. It’s proven to be the most effective goal-setting approach for organizations of all sizes and across every industry.

How to write SMART goals for employees

When setting employee goals, using the SMART framework is a highly effective approach. SMART stands for Specific, Measurable, Achievable, Relevant, and Time-bound. By following this method, you can ensure that your goals are clear and actionable.

Make sure your goal is specific. Avoid vague statements like “improve performance.” Instead, be precise by stating, “increase sales by 10% within the next quarter.” This way, everyone knows exactly what needs to be accomplished.

Next, include measurable criteria in your goal. Use numbers or other quantifiable metrics so progress can be tracked objectively. For instance, rather than saying “enhance customer satisfaction,” say “increase customer satisfaction ratings from 80% to 90%.”

Additionally, set achievable goals that are realistic and attainable based on the employee’s skills and resources available. It’s important not to set unrealistic expectations that will only lead to frustration and demotivation.

Furthermore, ensure that the goals you set are relevant to both the employee’s role and the overall objectives of the organization. Aligning individual goals with company objectives creates a sense of purpose and allows employees to see how their efforts contribute to larger success.

Lastly but importantly, establish a timeframe for achieving each goal. Setting deadlines helps maintain focus and encourages timely progress toward targets.

By following these guidelines when writing SMART goals for employees during performance appraisals or any other review process ensures clarity in expectations while motivating individuals towards achieving meaningful outcomes!

How to use SMART goals in the performance appraisal process

The performance appraisal process plays a crucial role in evaluating an employee’s progress and providing valuable feedback. By incorporating SMART goals into this process, organizations can enhance the effectiveness of performance appraisals and ensure that employees are working towards specific objectives.

To use SMART goals effectively in the performance appraisal process, managers should start by setting clear and specific objectives for each employee. These goals should be measurable so that progress can be tracked over time. For example, instead of simply stating “increase sales,” a more effective goal would be “increase monthly sales by 10%.”

Additionally, it is important to ensure that all goals are achievable and realistic within the given timeframe. Setting unrealistic expectations can lead to frustration and demotivation for employees. Managers should collaborate with their team members to set attainable targets based on their skills and resources.

Another key element of SMART goals is ensuring they are relevant to both individual job roles and organizational objectives. The goals should align with the overall mission of the company while also addressing specific areas where improvement or growth is needed.

Furthermore, every goal must have a defined timeline or deadline attached to it. This helps create urgency and ensures that employees stay on track towards achieving their targets. Regular check-ins throughout the year can help monitor progress towards these deadlines.

It is essential to provide ongoing support, guidance, and resources for employees as they work towards their SMART goals. Effective communication between managers and team members fosters accountability while allowing for necessary adjustments or revisions along the way.

By implementing SMART goals into the performance appraisal process, organizations can promote clarity, focus, motivation, and ultimately drive greater success among their workforce

Set Better SMART Goals

Want to learn more about setting goals for your employees and following through using automated software for performance reviews, learning and development, and more? Click here to schedule a demo of the Trakstar platform.

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Appraisal Meaning: What is an Appraisal in Real Estate?

Published: august 31, 2023, last updated: august 31, 2023.

When you're making a big purchase, you usually want to know that you're getting what you pay for. The same can be said for one of, if not the biggest, purchases you could possibly make: a home. In the realm of real estate transactions, appraisals are what play a crucial role in determining the value of a property. Understanding what an appraisal is, its significance, and how it differs from a home inspection is essential for buyers, sellers, and lenders alike.

In this article, we will delve into what an appraisal is, the appraisal process, and why they're important to potential clients.

Appraisal Meaning

In the world of real estate, an appraisal refers to the professional evaluation and estimation of a property's value. It is conducted by a licensed appraiser who assesses various factors, including the property's size, condition, location, comparable sales data, and market trends. The goal is to determine the fair market value of the property, providing an unbiased and objective opinion to parties involved in a real estate transaction.

How Much Does an Appraisal Cost?

The cost of an appraisal can vary based on factors such as the property's size, location, complexity, and the appraiser's expertise. On average, a real estate appraisal can cost anywhere from $300 to $425 for a single-family home or condo. It's important to note that the buyer or borrower is typically responsible for covering the cost of the appraisal.

Importance of Appraisals

Appraisals serve a crucial role in real estate transactions for several reasons. For one, by obtaining an appraisal, buyers, sellers, and lenders can have a realistic understanding of the property's worth, enabling informed decision-making.

Lenders can rely on an appraisal to determine the loan amount they are willing to extend for a property. Since the property serves as collateral for the loan, the lender wants assurance that it is worth the amount being financed. The appraisal helps the lender mitigate risks and make informed lending decisions.

Appraisals can also serve as a negotiation tool. If the appraised value of a property is lower than the agreed-upon purchase price, buyers can use it to negotiate a lower price. Similarly, sellers can utilize a favorable appraisal to justify their asking price. Appraisals provide an objective assessment of a property's value, empowering parties to make fair and informed negotiations.

Types of Appraisals

There are a few different ways that an appraisal can be conducted. They include the following:

• Full Appraisal: The most common type, where the appraiser conducts a thorough examination of the property and provides a detailed report of its value.
• Drive-By Appraisal: A less comprehensive appraisal, typically conducted from the exterior of the property, focusing on the property's condition and the surrounding area.
• Desktop Appraisal: An appraisal based on available data and without a physical inspection. This method is often used when the property is refinanced, or there is limited market activity.

Are Home Appraisals Required?

While home appraisals are often required for mortgage financing, their necessity may vary depending on factors such as the loan type, lender requirements, and the buyer's down payment. Cash buyers or individuals not seeking financing may choose to forgo an appraisal, although it is still recommended for an accurate understanding of the property's value.

Appraisals vs. Home Inspections

While appraisals and home inspections seem similar, they have two different end goals in the real estate process.

The primary purpose of an appraisal is to determine the value of a property, whereas a home inspection is to assess the condition of a property.

Appraisals focus on evaluating the market value of a property based on factors such as its location, size, condition, amenities, and comparable sales data. They provide an impartial and professional assessment of a property's worth. Appraisals are typically conducted by licensed appraisers who have expertise in property valuation and are often required by lenders when financing a property, as they want assurance that the property's value aligns with the loan amount.

Home inspections focus on evaluating the physical condition of a property, including its structure, systems (such as electrical, plumbing, and HVAC), and potential issues or defects. Inspectors provide a detailed report outlining the property's condition. Home inspections are conducted by licensed home inspectors who have expertise in identifying potential problems or deficiencies in residential properties. Home inspections are not typically required by lenders, but they are strongly recommended for buyers. Inspections help buyers understand the property's condition, identify any necessary repairs or maintenance, and make informed decisions. Both appraisals and home inspections play essential roles in real estate transactions, providing valuable information to buyers, sellers, and lenders.

The Appraisal Process

The appraisal process may vary slightly depending on local regulations and specific circumstances. Here is a general, step-by-step process of how an appraisal is conducted:

Engagement and Preliminary Information

The appraisal process begins with the engagement of an appraiser. The appraiser is typically hired by the lender or engaged by the buyer or seller and collects preliminary information about the property, such as its address, size, number of rooms, and any unique features or upgrades.

Property Inspection

The appraiser then schedules a visit to the property for an on-site inspection, during which they'll evaluate various aspects of the property, including its exterior, interior, structural components, condition, amenities, and any special features. The appraiser may take measurements, photographs, and notes during the inspection to document the property's characteristics.

Research and Analysis

After the property inspection, the appraiser will conduct thorough research and an analysis to determine the property's value. To do this, they'll gather relevant data, such as recent comparable sales (similar properties sold in the area), current market trends, and any unique market conditions or influences. The appraiser will then analyze this gathered data, making adjustments and comparisons to the subject property to arrive at an accurate valuation.

Report Preparation

The appraiser will then prepare a detailed appraisal report, which includes the findings, analysis, and conclusions. The report typically includes information about the property, the purpose of the appraisal, the methodology used, the comparable sales data, and any adjustments made. The appraiser then provides an objective opinion of the property's value based on their professional expertise and the gathered data.

Delivery of Appraisal

Finally, the appraiser submits the completed appraisal report to the party that engaged their services, which is often the lender or the client (buyer or seller).

In the intricate world of real estate, appraisals hold significant importance for buyers, sellers, and lenders. They are a critical component of the real estate landscape, providing valuable insights and an unbiased evaluation of a property's worth. Understanding a property's appraisal can allow real estate agents to help their clients make informed decisions, negotiate effectively, and ensure the fair value of their home purchase.

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• Become Debt-Free Your federal student loans are accruing   interest again—but you have options
• Become Debt-Free How the SAVE plan can help student loan   borrowers reduce monthly payments
• Become Debt-Free 53% of student loan borrowers added credit   card debt during the payment pause
• Become Debt-Free Federal student loan borrowers can now   apply for the SAVE repayment plan
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The SAVE plan is touted as the most affordable student loan repayment option—how to know if it's right for you

The Biden administration has touted the new Saving on a Valuable Education repayment plan as the "most affordable repayment plan ever," boasting that it can cut federal student loan borrowers' payments in half and save them thousands of dollars a year. 

The Department of Education recently opened applications for the SAVE plan ahead of the expiration of the pandemic moratorium on payments and interest in September. When borrowers begin making payments again — or for the first time ever — in October, many could have a lower, or even no monthly payment , on the SAVE plan. 

But the SAVE plan may not be the best option for you. Depending on your repayment goals and income, you might be better off sticking to the standard repayment plan or another income-driven plan. The Federal Student Aid website has a loan simulator tool that lets you compare all the available repayment options and helps you choose the best one for your specific situation. 

SAVE replaces the plan formerly known as Revised Pay as You Earn. And the other IDR plans — Pay as You Earn and income-contingent repayment — will be eliminated.

Borrowers currently on those plans will be able to stay on them, but you will not be able to enroll or re-enroll if you leave the plans after July 1, 2024. The primary difference in benefits is for graduate borrowers who have to wait 25 years for loan forgiveness on SAVE versus 20 years on PAYE.

Here's a look at the factors to consider before you apply for the SAVE repayment plan.

Pros of the SAVE repayment plan

While some of these benefits may not apply to your situation right now, they could if your income or family size changes in the future. Plus, there are more changes to SAVE rolling out in 2024 that could make it even more attractive for you. 

Here are three of SAVE's primary benefits:

1. Affordable monthly payments

Your payments on SAVE are capped at 10% of your discretionary income. That's defined as the difference between your adjusted gross income and 225% of the federal poverty line, which is about $32,800 a year for individuals in 2023. And beginning next summer, that payment will be cut in half, as the cap will drop to 5% of your discretionary income.

For borrowers earning $32,800 a year or less (or $67,500 and under for a family of four), your monthly payment will be $0. 

2. Cap on interest

Accumulating interest has been called out as a contributor to the student debt crisis . The SAVE plan aims to address that by cutting additional interest charges after you've met your monthly payment. 

That means if your monthly payment is $0, you won't be charged additional interest. If $50 in interest accumulates on your loans in a month, but your payment is only $30, you won't be charged the additional $20. 

This could be an especially helpful benefit for borrowers who expect to significantly increase their salaries in the future. Consider a doctor completing their residency, Lauryn Williams, a certified financial planner and consultant with Student Loan Planner, tells CNBC Make It.

"With SAVE, you're getting an interest subsidy," she says. "This physician who's making 50 grand a year has a really low [payment] on SAVE, with no [extra] interest piling up on them."

Once that doctor starts earning a higher salary, they may consider a different repayment plan, Williams says, but they've reaped the benefit of saving on extra interest while they were on the SAVE plan. They could, of course, remain on SAVE, but with annual income certifications, their payment will rise along with their salary.

3. Forgiveness after as little as 10 years

Beginning in 2024, those with principal loan balances of $12,000 or less can have remaining balances forgiven after just 10 years of payments on the SAVE plan. You'll need to make payments for an additional year for every $1,000 you borrowed above $12,000 up to 20 or 25 years, depending on the degree.

An undergraduate borrower with a principal balance of $15,000 would need to make payments on SAVE for 13 years in order to qualify for loan forgiveness.

All IDR plans had some forgiveness component , mainly forgiving remaining balances after 20 or 25 years, regardless of the original balance. SAVE allows borrowers with lower balances to receive forgiveness earlier, but still keeps the 20-year loan term cap in place for undergraduate borrowers.

It's worth mentioning that you may owe income tax on any amount of debt you have forgiven, as several states treat forgiven debt as taxable income. While there is currently a waiver on federal income taxes on forgiven debt, it's scheduled to expire in 2025.

This will be especially important for low-income borrowers who go the full 20 or 25 years with low or no monthly payments and have relatively large amounts of debt forgiven.

Cons of the SAVE repayment plan

The SAVE plan is primarily designed to benefit low- and middle-income earners. While other borrowers may still find reasons to enroll, there are drawbacks to consider. 

Here are three drawbacks of the SAVE plan:

1. Borrowers with mid-level balances don't stand to benefit as much

Your monthly payment on the SAVE plan is income-driven, whereas your monthly payment on the standard repayment plan is balance-driven. That's because the standard plan is designed so that if you make every monthly payment in full and on time, your debt will be paid off in 10 years, or 120 monthly payments, regardless of your original balance.

With a starting debt balance of $26,946 (the average among borrowers when they graduate, according to the National Center for Education Statistics), you would pay $272 a month on the standard repayment plan according to FSA's loan simulator. You would have to earn about $65,000 or less to see that same monthly payment or lower on the SAVE plan.

If you earn more, your monthly payment will go up on the SAVE plan. While that may mean you pay off your balance faster, it would also mean missing out on the benefit of having some of your debt forgiven.

Bottom line: The higher your loan balance, the more likely it is you'll be able to benefit from some amount of debt forgiveness if you remain on the SAVE plan for the required 20 or 25 years. But depending on your income and other expenses, that might not be feasible for you.

Every situation is different so it's a good idea to use the loan simulator tool or run your own calculations to see what's best for you.

2. Monthly payment adjusts as income changes

Since the SAVE plan is an income-driven repayment plan, the higher your income, the more you pay each month. While your payment will stay capped at a percentage of your income, you may find it's more than you want to pay.

You also have to recertify your income every year in order to stay on the SAVE plan, which means every year your salary goes up, your payment likely will too. 

This may help you pay off your debt faster, but some borrowers prefer the stability of knowing they'll have the same monthly payment for the duration of their repayment.

3. The SAVE plan isn't available for parent Plus borrowers

Parents who took out loans on behalf of their child are ineligible for all IDR plans, including the SAVE plan.

The only option for parent borrowers outside of the standard, graduated and extended repayment plans is to consolidate their parent Plus loan into a direct consolidation loan to become eligible for the income-contingent repayment plan.

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Exclusive: Arm signs up big tech firms for IPO at $50 billion-$55 billion valuation

A smartphone with a displayed Arm Ltd logo is placed on a computer motherboard in this illustration taken March 6, 2023. REUTERS/Dado Ruvic/Illustration Acquire Licensing Rights

NEW YORK, Sept 1 (Reuters) - Customers of Arm Holdings Ltd including Apple Inc (AAPL.O) , Nvidia Corp (NVDA.O) , Alphabet Inc (GOOGL.O) and Advanced Micro Devices Inc (AMD.O) have agreed to invest in the chip designer's initial public offering, according to people familiar with the matter.

Intel Corp (INTC.O) , Samsung Electronics Co Ltd (005930.KS) , Cadence Design Systems Inc (CDNS.O) and Synopsys Inc (SNPS.O) have also agreed to participate as investors in the offering, the sources added. The talks are ongoing and some other potential investors are also in discussions to invest in the IPO, the sources added.

SoftBank Group Corp (9984.T) , which owns Britain-based Arm, is targeting a valuation between $50 billion and $55 billion, Reuters reported earlier on Friday. Arm's clients have agreed to invest in that valuation range, the sources said.

While it is possible that demand for Arm's shares will lead to a higher valuation by the time the IPO prices, the move represents a climb-down from the $64 billion valuation at which SoftBank acquired the 25% stake in the company it did not already own from its $100 billion Vision Fund last month.

Apple, Nvidia and the other strategic investors have agreed to invest between $25 million and $100 million each in the blockbuster IPO, the sources said. Arm and SoftBank have set aside 10% of the shares to be sold in the IPO for its clients, Reuters has previously reported.

Amazon.com Inc (AMZN.O) , which had previously held talks to invest in the IPO, has decided not to participate, one of the sources said, requesting anonymity as the discussions are confidential.

A scramble among Arm's clients, comprising the world's biggest technology companies, to snap up shares in the IPO is testing the semiconductor designer's adherence to not picking sides in the chip industry.

The interest is fueled by a desire by companies to expand their commercial relationship with Arm and make sure rivals do not gain an edge, Reuters has previously reported.

While an investment in the IPO would not come with a seat on Arm's board or ability to dictate strategy, it could strengthen ties with each participating company and make it harder for a competitor to acquire Arm later.

Arm and SoftBank did not immediately respond to requests for comment.

AMD, Intel, Synopsys and Nvidia declined to comment. Alphabet, Amazon, Apple, Samsung and Cadence did not immediately respond to requests for comment. The Wall Street Journal reported on Arm's valuation target earlier on Friday.

Reporting by Echo Wang in New York; Editing by Anirban Sen and Rosalba O'Brien

Our Standards: The Thomson Reuters Trust Principles.

Thomson Reuters

Echo Wang is a correspondent at Reuters covering U.S. equity capital markets, and the intersection of Chinese business in the U.S, breaking news from U.S. crackdown on TikTok and Grindr, to restrictions Chinese companies face in listing in New York. She was the Reuters' Reporter of the Year in 2020. Contact: +9172873971

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Biden’s New Student Loan Repayment Plan Is Open. Here’s How to Enroll.

The income-driven plan, SAVE, will reduce payments for millions of borrowers, and more will qualify for $0 payments.

By Tara Siegel Bernard

Borrowers who are buckling under the pressure of their federal student loans have a new option to significantly cut their payments, eventually by as much as half.

The Biden administration’s new income-driven repayment plan, known as SAVE, opened for enrollment on Tuesday, providing millions of borrowers with a more affordable way to pay their monthly student loan bills, which will become due again in October after a three-year pause.

“With the SAVE plan, we are making a promise to every student,” Education Secretary Miguel Cardona said during a call with reporters on Monday afternoon. “Your payments will be affordable. You’re not going to be buried under a mountain of interest, and you won’t be saddled with a lifetime of debt.”

In the coming days, more than 30 million borrowers will be invited to enroll in the plan, which was initially proposed in January and bases monthly payments on income and family size.

Unlike the White House’s former plan to cancel up to $20,000 in federal debt — struck down by the Supreme Court in June — this payment option will become a permanent piece of the student loan machinery and be available to current and future borrowers. It also creates a new safety net, automatically enrolling certain borrowers into the SAVE plan after they have fallen behind on their payments.

Borrowers who want to sign up for the SAVE — or Saving on a Valuable Education — plan should move quickly: You can expect to wait roughly four weeks for your application to be processed, senior Education Department officials said. By enrolling now, you can have your paperwork processed with enough time before your first payment becomes due, officials added.

Borrowers won’t receive the full benefits of the plan until next summer, because some features won’t immediately take effect. Here’s a rundown on how the plan will work:

Who is eligible for the new repayment plan?

Those with federal undergraduate or graduate loans. Borrowers with undergraduate debt are eligible for lower payments than graduate borrowers.

Who is excluded?

Parents who borrowed to pay for their children’s schooling using Parent PLUS loans cannot enroll in the new plan.

If parent borrowers cannot afford to make their payments, they generally have access to only the most expensive income-driven repayment plan — known as income-contingent repayment — which requires borrowers to pay 20 percent of their discretionary income for 25 years; anything remaining is forgiven.

How does the new SAVE plan work?

All income-driven repayment plans generally operate the same way. Payments are based on your earnings and household size, and are readjusted each year. After monthly payments are made for a set number of years, usually 20, any remaining balance is forgiven. (The balance is taxable as income, though a temporary tax rule exempts balances forgiven through 2025 from federal income taxes.)

The SAVE plan — which replaced the Revised Pay as You Earn program, or REPAYE — is more generous in several ways. To start, it would reduce payments on undergraduate loans to 5 percent of discretionary income, down from 10 percent in REPAYE (and 15 percent in other plans).

Graduate debt is also eligible, but borrowers would pay 10 percent of discretionary income on that portion. If you hold both undergraduate and graduate debt, your payment will be weighted accordingly.

The new rules also tweak the payment formula by protecting more income for basic needs, which in turn reduces payments overall. That change will also allow more low-income workers to qualify for $0 payments.

What is discretionary income?

Once you pay for basic needs like food and rent, any leftover income is considered discretionary; income-driven repayment plans require borrowers to pay a percentage of that discretionary income.

The SAVE plan tweaks the payment formula so that more income is shielded for those basic needs, generating less discretionary income and a lower payment.

SAVE increases the amount of income protected from repayment to 225 percent of the federal poverty guidelines, roughly equivalent to $15 an hour for a single borrower. If you earn less than that, you won’t have to make a monthly payment.

Put another way, a single person who makes less than $32,805 a year would make $0 monthly payments. The same goes for someone in a household of four with income below $67,500. That should help an additional one million low-income borrowers qualify for a zero-dollar payment, the Education Department said.

Under the old REPAYE program, less income was shielded, or up to 150 percent of the federal poverty guidelines.

Will the way interest is treated change?

Yes. This is one of the most attractive features of the new plan. If a borrower’s monthly payment does not cover the interest owed, the Education Department will cancel the uncovered portion.

In other words, if a borrower owes $50 in interest each month but the payment covers only $30, the remaining $20 will disappear as long as the payment is made. And monthly interest will be canceled for those who are not required to make payments because their income is too low.

This new rule will provide relief to those who made payments but saw their balances balloon because they didn’t pay enough to cover the interest owed.

Does the plan go into effect right away?

Three big components of the plan are available now, including shielding more income from the repayment formula, which will reduce more borrowers’ payments to zero. The new treatment of unpaid interest is also in effect. Lastly, married borrowers who file their taxes separately will no longer be required to include their spouse’s income in their monthly payment calculation. (They will also have their spouse excluded from their family size.)

But other benefits — including cutting payments to 5 percent from 10 percent of discretionary income on undergraduate loans — won’t take effect until July.

Once the plan is in full swing next summer, many borrowers’ monthly bills, per dollar, will drop 40 percent compared with the REPAYE plan. But the lowest earners may see their payments fall 83 percent, while the highest earners would receive only a 5 percent reduction.

Are there any changes for borrowers with small loan balances?

Yes, but this feature takes effect next summer.

People who took out smaller loans — or those with original balances of $12,000 or less — would make monthly payments for 10 years before cancellation, instead of the more typical 20-year repayment period in other income-driven repayment plans. Every $1,000 borrowed above the $12,000 amount would add one year of monthly payments before the balance was forgiven, up to a maximum of 20 or 25 years.

Will the new plan always be the best option?

The SAVE plan is expected to provide the lowest payment for most borrowers and will probably be the best option for most. The loan simulator tool at StudentAid.gov can help you analyze which repayment plan makes the most sense given your circumstances and goals.

When you sign in, it should automatically use your loans in its calculations. (You can add other federal loans if any are missing.) You can also compare plans side by side — how much they’ll cost over time, both monthly and in total, and if any debt would be forgiven.

What about borrowers who were in default before payments were paused?

Borrowers who fell into default before the payment pause — which happens when you’re at least 270 days behind — have received a fresh start and are considered current on their payments. That means they can enroll in SAVE or any other repayment plan.

But they need to take certain steps to do so — and complete them before September 2024 to keep their loans out of default for the long term.

Here’s how: Contact the Education Department’s Default Resolution Group — by phone, online or mail — and ask to take your loans out of default through the “Fresh Start” program. The default group can also help you enroll in an income-driven repayment plan, including SAVE.

The group will transfer your loans to a regular loan servicer and wipe the record of default from your credit report.

“Their new servicer will then put them into the I.D.R. plan with the lowest monthly payment they are eligible for,” a spokesman for the Education Department said. “For most borrowers, this is SAVE.”

Can delinquent borrowers enroll?

Borrowers who fell behind on their monthly student loan bills before the payment pause have also received a fresh start and will be permitted to enroll in the SAVE program, just like any other borrower.

Going forward, borrowers who go 75 days without making a payment will be automatically enrolled in the SAVE plan — as long as they have provided approval to disclose their federal tax information to the Education Department. This policy will take effect next July.

How do I sign up?

You can sign up online at StudentAid.gov/SAVE ; borrowers will be able to see their payment amount before signing up. Administration officials said the process shouldn’t take more than 10 minutes. After applying, you can check the status of your application by visiting your account dashboard.

And for the next few months, loan servicers will also be able to help borrowers enroll and “self-certify” their income without needing tax documentation, either through the servicer’s website or over the phone, said Scott Buchanan, the executive director of Student Loan Servicing Alliance , an industry trade group.

Those who were already enrolled in REPAYE don’t have to do anything — they will be automatically transferred into SAVE, and their payment amounts will be adjusted. It’s also possible to switch from another income-driven repayment plan into SAVE, without resetting the clock on your payments.

For more information about the repayment start, here is our guide.

What happens if I try to enroll, but my application cannot be processed in time for my first payment?

You will be placed in forbearance, meaning no payment will be due, for the next billing cycle.

Do I have to do anything to remain enrolled?

Your payment size adjusts each year based on your earnings, and your income needs to be updated annually.

But if you give the Education Department permission to access your income information through the Internal Revenue Service (something you can do now during the sign-up process), you will not need to recertify your income each year because it will be done automatically.

Tara Siegel Bernard covers personal finance. Before joining The Times in 2008, she was deputy managing editor at FiLife, a personal finance website, and an editor at CNBC. She also worked at Dow Jones and contributed regularly to The Wall Street Journal. More about Tara Siegel Bernard

How to Evaluate a Business Plan

by Evangeline Marzec

Published on 16 Oct 2019

Whether you're an investor, an entrepreneur or a business skills teacher, you'll be exposed to a wide variety of business plans and should have a solid, somewhat standard approach to conducting a business plan assessment. Analyze each section individually, and then look at the plan as a whole to determine the viability of the business and the likelihood of its success in the manner proposed. Also consider the writing skills and attention to detail that went into formulating the plan.

Read and Understand the Executive Summary

The first step in a business plan assessment is reading the business' executive summary. This should be a concise "elevator pitch", not a summary of the business plan. In one or two pages, it should convey the market opportunity and the uniquely compelling features of the business that will help it meet that opportunity. The executive summary should excite you and make you want to turn to the next page. If it doesn't, the entrepreneur might lack marketing or writing skills, or it may indicate that the idea itself is not going to fly.

Analyze Opportunity in the Market

Evaluate the market opportunity. Ideally, the market should be growing at least 10% per year and have a substantial potential relative to the size of the business and investment. For example, a small company seeking an investment of $50,000 should see a potential market of $5 million.

The larger the potential market and the faster it is growing, the greater the opportunity in the market. Look to the exhibits and appendices to ensure that the business actually has done the necessary market research and can back up any claims.

Evaluate the Company's Business Strategy

Examine the company strategy for capturing its market. The plan must clearly describe the problem the company is solving or need it is meeting for customers, and then propose a solution. This is the crux of a business plan assessment.

Closely examine the alignment between problem and solution. Will the company actually address that need? This evaluation must take into account the product or service being offered, the operational capacity and efficiency with which the business actually can produce its product, and the quality of the proposed marketing efforts.

Examine the Business Environment

The business plan should describe the competitive landscape in which the company operates, preferably by referencing Porter's 5 Forces or another well-established tool. Look for detailed breakdowns and analyses of each of it competitors, and of how the company is different and better than the competition in a particular niche. This section should include the regulatory environment and mention any costs or necessary delays associated with regulations.

Porter's 5 Forces is an evaluation model that looks closely at the five competitive forces at play in the business landscape. These forces are present in every industry and by evaluating how they manifest in an individual industry, one can gauge that industry's strengths and weaknesses. Porter's 5 Forces are:

• Competition in the industry
• Potential of new entrants in the industry
• Power of suppliers
• Power of customers
• Threat of substitutes

Evaluate the Leadership Team

Look for experience, integrity and passion in the executive team. Read bios and brief highlights of each executive's strengths and expertise should accompany standard business information such as headquarters and corporate structure. The company should have experienced advisers, either formally or informally.

It is paramount that the principals involved in the business convey their passion and drive toward success with this project. If the founders haven't invested their own capital into the business, or plan on keeping their “day jobs” while running the business, they might lack faith in the project.

Crunch the Numbers and Understand the Finances

Ensure that the financial projections are both promising and realistic. Most entrepreneurs vastly overstate their company's potential, starting with the market size and market share. Financial figures should be based on historical data if available, or very conservative projections if the company is not yet profitable. Entrepreneurs that project capturing 20% market share in the first two years probably have unrealistic expectations.

Investigate the returns provided by the investment. Good business plans include exit strategies for pulling the initial investment back out of the company, and have a realistic valuation of their shares.

View the Business Plan as a Living Document

Evaluate the business plan as a whole document, and as a reflection of a real-world company. Determine whether the market need is adequate, the company's offerings are compelling, the management team experienced and committed, and the financial statements realistic. Does this company as a whole have a chance of success?