A business valuation is much more than simply an estimate of the amount of money you can get sell your company. The development of a company, its efficiency, and value to shareholders are all enhanced by the help of a valuation, since it offers an objective assessment of the value of the business.
This article will cover the top 6 reasons that every business owner should have a valuation of their business done.
Exit Strategy
You can evaluate a company’s strategy and its market worth with the help of a valuation. When there is a recession or rapid changes, this is crucial. The expansion of a company, its appraisal or acquisition plans could be all influenced by the cash in hand. All of which are aspects of the valuation of business assets.
By conducting an appraisal of business assets you can evaluate a company’s stocks, bonds as well as other assets. The cost of financing an acquisition or investment could be discussed with investors by using this. In addition, business valuations help investors determine how much they should invest in a business in order to earn a reasonable return.
Estate & Gift Tax
Gift and estate taxes are assessed on the amount of an individual’s assets at the death of the person. If the death of a person, their entire property that is tax-deductible is subject to the federal estate tax. Federal gift taxes are a matter of the amount of money and property transferred to family members throughout the course of.
It is possible to use the information on business value as part on your tax returns for income in order to answer questions about estate taxes and gifts.
Mergers and acquisitions
A business valuation is helpful for buyers to know the value of a company’s worth. A buyer must be aware of the worth of the business’ assets as well as liabilities to figure this figure.
Potential buyers will like to know whether they’re paying excessively for the liabilities and assets of the company they are interested in buying. Are you unsure regarding the value of a business? A valuation can help.
Purchase and sell agreements
A buy-sell agreement for an organization may require evaluation of company’s value. There are however benefits for business and taxation in these agreements. For instance, if the buyers and sellers are closely related and have a common law relationship, the estate tax or gift tax might require to be determined.
By utilizing an agreement to buy-sell, remaining shareholders of an closely-held company may buy the shares of a departing, retiring and/or deceased shareholder. The agreements include a fixed price or formula that allows the sale of the existing owner’s share.
An analyst of valuation must regularly revisit these values or formulas to keep track of the company’s growth.
Shareholder and partnership buyouts/disputes
A buy-sell contract can help to avoid conflicts in business structures such as LLCs and partnerships. Setting a price in mind could be beneficial when bargaining.
Retirement, the entry to a partnership the divorce or death of an existing shareholder or a conflict between shareholders are the most common motives for a buyout within an closely-held corporation. If one of the shareholders believes that they were unfairly treated during an acquisition, the cost for settling the dispute could be increased.
Shareholders may still require an expert on business valuations regardless of whether there is an agreement to buy-sell in place.
Marital Dissolution (or divorce)
A business evaluated prior to a divorce will enable both parties to forward with greater certainty.
In order to determine spousal support and custody of children, a judge could look at a company’s valuation report which outlines each party’s finances and assets.
You can find divorce settlements in the valuation report of a business. This protects your rights as a business owner , and prevents fraud or disinformation on the other side.
Conclusion
We have discussed the top six reasons for valuing a company and the reasons each business owner should have one. A thorough appraisal of a company could be used to prove a point in divorce proceedings or in legal disputes.
Arrowfish Consulting is the best solution if you need help in completing a business appraisal. Keep track of your progress and observe the development of your business with our assistance. We are a team of experts with more than 200 years of experience and are comprised of certified experts in business valuation.
There’s a blog written on the subject in great detail. It’s available for viewing through clicking this link.
