8 Reasons to Consider Getting a Business Valuation

Why should you consider getting a business valuation? A business valuation is a smart, proactive step to protect everything you have worked for professionally. Perhaps your first valuation is for benchmarking purposes, so you know the true value of your business. It is a deliberate way to measure progress and to set goals. A valuation allows you to have options, and options allow for better strategic decisions. Most importantly, a business valuation is usually a requirement from a material event impacting your business.

Here are eight situations that warrant a business valuation.

1. Succession Planning – Businesses may be sold to employees, gifted to trusted family members, or sold to a strategic buyer or a third-party. In any of these situations, a business valuation is necessary. Each of these scenarios is complicated with distinct tax implications.
2. Estate and Gift Taxes – You might need a business valuation to file an estate tax return and provide guidance to the personal representative of the estate to fulfill the terms of the decedent’s will.
3. Sales, Mergers and Acquisitions – A company up for sale always includes a valuation as part of the sale documents. A merger of two companies will typically require both companies to obtain a valuation, but an acquisition usually only requires a valuation of the company being acquired. Inaccurate or inappropriate calculation of the valuation could increase taxes or even penalties.
4. Buy/Sell Agreements – According to Investopedia, “A buy and sell agreement controls the reassignment of a share of a business in the event that a partner dies or retires.” Business valuations for buy/sell agreements need to be updated periodically to keep pace with changes in the economy and the business environment. To help protect a closely held business with one or two significant employees, the business will purchase key person insurance in case something happens to them.
5. Shareholder and Partnership Buyouts or Disputes – Many states allow a business to be dissolved without unanimous consent. A current business valuation can help protect your business interests if this happens.
6. Divorce – If your marital situation requires you to split your assets, you need a valuation.
7. Financing/SBA Loan – Banks and the Small Business Administration often require a valuation before approving a loan. The valuation provides the bank with fair market value amounts that can support a loan.
8. ESOP – Employee Stock Ownership Plans or ESOPs is an employee benefit plan that invests in employer common stock. It is a common option for business owners who do not want to go public. The advantages of ESOPs include capital, liquidity, and tax advantages. However, the Department of Labor and the IRS mandate that a valuation must be performed annually for an ESOP. This valuation determines the price per share for the beneficiaries of the ESOP plan.

The methodology used in a business valuation is important. It should be a clear, precise, and current estimation of what your business is worth. It also needs to hold up to scrutiny if your business is sold or involved in litigation.

Do not be intimidated by the prospect of a business valuation. It is a smart, strategic move to help maximize your options as a business owner.

Weiss’ business valuation team includes several CVA’s (Certified Valuation Analysts) and have developed an expertise in this field based on decades of highly respected work and industry recognition. If you are curious and want to learn more or anticipate being confronted with one of the situations mentioned above, call Weiss today and ask to speak to one of our valuation experts.