As a privately held business, knowing your true value isn’t always straightforward. The big guys can look to their publicly traded stocks as an easy indication of worth, but you don’t have that luxury.
An independent business valuation can help you know the true value of your business, provide a baseline to measure future progress, set you up for successful mergers or acquisitions, and give you key knowledge for legal purposes.
So, the question is – when you should get one?
In this article, we discuss seven scenarios that indicate it may be time for a professional business valuation by a credentialled valuator.
- Establishing a Baseline Value
While there are plenty of compelling legal reasons to get a valuation, you don’t have to wait until you are selling or in litigation to conduct a valuation. A baseline valuation can be an extremely valuable tool for goal setting and decision making. You get an outside perspective on the value of your business, as well as key insights into what’s happening in your industry. Plus, you can measure future progress against an accurate baseline.
- Setting Yourself up for Succession
Whether it’s time to look to retirement, or a new venture, a business valuation can help with whatever comes next for your current business. No matter if you are gifting shares to family, selling to another business or third party, or selling to your employees through an Employee Stock Ownership Plan (ESOP), a valuation gives you the knowledge you need to move forward. And should the IRS ever coming knocking, you have an accurate and defensible valuation from an independent third party which can help you avoid problems.
- Preparing for Sales, Mergers and Reorgs
Valuations are important business intelligence when preparing for a sale, merger, or business reorganization. Whether you are acquiring a new business, selling your current one, reorganizing, or filing for bankruptcy, it’s time to get an independent valuation. A business valuation will help you determine a fair price or value for your business and all its assets. While it’s not required when you are the buyer, if you plan to merge your companies it may be necessary.
- Handling Trouble in Paradise
No one wants an ownership dispute, divorce, or other legal battle – but unexpected things happen all the time. You will find that many states allow businesses to merge, dissolve, or restructure without unanimous consent – meaning a legal battle could ensue. A business valuation could be part of the settlement process. In the case of a divorce of a business owner, a valuation is needed to divide the marital estate.
- Recording Sales Correctly for Tax Purposes
Should you buy or sell your company, the purchaser and seller will need to record the sale correctly. If you don’t, you could face increased tax liabilities or penalties. An independent valuation can help both parties agree on a price and record the sale correctly.
- Making Fair Buy/Sell Agreements
A valuation may be necessary should you want to develop a buy/sell agreement with your other owners. These agreements allow an owner to acquire another owner’s interest if another owner decides to retire, exit, or dies. They often include a designated price or formula to determine the remaining owner’s price to acquire said interest – and an independent valuation can help you determine that.
- Securing Financing and Loans
When you are negotiating with banks and other outside financing sources, an objective business valuation can help you communicate your value in order to raise capital. Financial institutions may require this information to underwrite and approve your request.
These are just a few of the many reasons to have a trusted professional do an independent valuation of your business. We hope this was helpful to you as you weigh your options. And if it’s time to get a valuation, we can help with that – contact us today for a complimentary consultation.
