Why Do You Need a Business Valuation?
Why would you consider keeping your business valuation current? You might be able to think of one or two reasons, but there are plenty:
- What if something calamitous were to happen to you as the business owner? It obviously would mean a major change. With an up-to-date business valuation, your family will have a much easier time dealing with the potential sale or dissolution of your business.
- You never know when an opportunity to sell or merge with another company will come your way. You may have to decide quickly. With a current business valuation, you'll be able to take advantage of any opportunities that may occur.
- You may want to take on a new partner or LLC member. You'll need to know the value of your business to determine the buy-in price. The new owner will also want to see the valuation—to decide whether the buy-in price is reasonable.
- Do you have an exit strategy? Are you reaching retirement age? You'll need to know the value of your business to construct a plan. It could mean a restructuring; a valuation can help determine the strategy.
- You may be thinking about expanding or building a new facility. The bank might want a valuation of your business for financing purposes. With your valuation, you can streamline the process and more easily obtain a lending decision.
- What if your partners or shareholders want out? You'll need the valuation to figure out how to divide your business. With the information on hand, an unpleasant situation can be less stressful.
- With a valuation, you'll have a benchmark with which to compare the value of your business before and after a business disaster occurs. After all, you can't go back in time to value your business as of a previous date—not with the utmost accuracy.
- Divorce or other family issues may occur. With an up-to-date business valuation, you can help plan how to deal with personal emergencies and unpleasant events. Divorce? The court will almost certainly want to establish the value of your business as an asset of the marriage, but most likely, the judge will appoint a neutral third party to conduct the valuation. However, you may be able to avoid court entirely if you know the value of your business as you and your spouse begin discussions and negotiations to settle matters on your own.
- You may want to determine the annual per share value of an employee stock ownership plan (ESOP).
You should be convinced by now that you need a business valuation. What's the next step? Start by finding a qualified business appraiser who's experienced with business valuations. Note that "valuation" covers a wide range of items, so make sure it's a firm that can do business valuations and has experience with your particular niche.
Contact me at firstname.lastname@example.org or (520) 881-4900 to learn more and to discuss your need for a comprehensive business valuation.
About this Author
Amy leads R&A's tax department. Her focus is individual and business tax compliance and consulting with an emphasis on working with clients through all stages of their business and life. Amy's clients span a variety of fields including manufacturing, medical practices, and hospitality. She also is accredited in business valuations and assists clients in valuations for business transition planning and estate and gift planning.