Do you know the real value of your business? Should you care? Surprisingly, most owners don’t know the answer to the first question even though their business is typically their most valuable asset. The answer to the second question is absolutely yes. Accurately assessing the value of your business, and keeping the valuation updated, needs to become a critical component of any ongoing business strategy.
Here is our list of the top ten reasons why business owners should have a formal valuation of their business:
Updating, or establishing buy/sell agreements. If you have business partners, a current buy/sell agreement with a proper assessment of value can help you avoid problems down the road. Brush the dust off the agreement that you signed years ago and revisit it now.
Resolve disputes before they escalate. Problems may start small and grow. Before long, you and your partner can’t work together. Knowing the value of your business asset in advance of a dispute may allow you to amicably resolve matters before they negatively impact the business.
Gain an understanding of the value of the business. You spent decades building a business and don’t know what value you’ve created for your estate. The business may be worth more, or less, than you think. Don’t wait to find out.
Determine the Annual Per Share Value of an Employee Stock Ownership Plan (ESOP). In order to meet Employee Retirement Income Security Act of 1974 (ERISA) and IRS requirements, shares of ESOPs must be valued by an independent valuation expert on an annual basis to establish a fair stock price.
Securing growth or working capital for your business. Whether you’re negotiating with your current bank, looking to establish a new banking relationship, or seeking outside capital, an objective valuation will help secure capital for your business.
For litigation support services. Getting an independent appraisal of the business from a market specialist can slant negotiations in your favor and may even help settle matters before they escalate to trial.
Planning for an eventual sale or exit. If you ever intend to sell out down the road, conduct a market assessment of value now to establish a baseline value of the business. Depending upon your sale timeframe, you may be able to make the necessary changes to increase profitability and add value upon exit.
No one can take the business with them when they pass away. Leaving your family with an undervalued business asset can create a significant tax burden. By establishing fair market value, you can make sure your family avoids a future estate tax liability.
To determine the value of the business in a marital dissolution. Value of the assets need to be established if you and your former spouse want an equitable division of assets.
If you’re planning to gift an interest in the business. Whether you intend to pass along a portion of the business to a family member or donate it to a charity or university, a defensible valuation prevents IRS problems from materializing.
We could go on and on, but you get the message. Regardless of your reason, or perhaps you don’t have a reason today, having your business valued should not be taken lightly. Instead of hiring your local accountant or a business broker to perform the service, hire a qualified valuation firm with the appropriate credentials. Better yet, hire us, a specialist in your industry, with experts who thoroughly understand what adds to, or detracts from, value in today’s marketplace. Doing nothing is always an option, but not performing a valuation may put you and your business in harm’s way. In the long run, you may pay a lot more in real cost and negative impact on your staff, partners, and/or family.