What is the difference between a formal valuation report and an informal valuation?
A formal valuation report must be prepared by a Chartered Business Valuator (CBV) or similarly credentialed professional to meet regulatory and legal standards in Canada, while an informal valuation provides a pricing estimate based on comparable sales and market multiples without the rigorous documentation of a formal report.
What defines a formal valuation report
A formal valuation report includes detailed financial analysis, market comparables, industry research, multiple valuation methodologies, and comprehensive supporting documentation. The report is defensible in court and for regulatory purposes, making it the required standard for litigation, tax disputes with CRA, shareholder disputes, estate planning, and matrimonial proceedings.
Formal valuation reports typically cost between $5,000 and $25,000 for straightforward engagements and $25,000 to $50,000 or more for complex valuations involving litigation support, estate disputes, or shareholder disagreements. A formal valuation engagement typically takes 4 to 8 weeks to complete.
What defines an informal valuation
An informal valuation — also called a broker opinion of value or BPO — provides a pricing estimate based on comparable sales and market multiples without the rigorous documentation of a formal report. Informal valuations are not intended for third-party reliance or legal proceedings.
Among Advisor Standard profiles with disclosed service information, 78% classified as business brokers offer informal valuation services and 34% classified as M&A advisors collaborate with CBVs for formal reports.
When you need a formal valuation report
Formal valuation reports are required for litigation, tax disputes with CRA, shareholder disputes, estate planning, and matrimonial proceedings. Any situation where the valuation will be scrutinized by regulators, courts, or other parties with legal standing requires the defensibility of a formal report.
When an informal valuation is sufficient
Informal valuations are typically used for initial pricing decisions, exploratory discussions with potential buyers, and internal planning purposes. Most private business sales in Canada do not require a formal valuation report unless triggered by tax, legal, or shareholder issues.
Cost and timeline differences
Basic informal pricing opinions from business brokers typically cost between $500 and $3,000 and can often be completed within 1 to 2 weeks; more substantive broker opinions of value that include detailed comparable transaction analysis may cost more. Formal valuation reports typically cost between $5,000 and $25,000 for straightforward engagements and $25,000 to $50,000 or more for complex valuations, and take 4 to 8 weeks to complete.
The cost difference reflects the level of documentation, the credential requirements of the valuator, and the intended use of the report. If you need a defensible number for legal or regulatory purposes, the formal report cost is unavoidable. If you need a market-informed pricing estimate to guide a sale process, an informal valuation is usually sufficient.
This article is for informational purposes only and does not constitute financial, legal, or business advice. Every business sale is different. Before making decisions about valuation, pricing, or engaging an advisor, consult a qualified professional familiar with your specific situation.
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