Benefits to Valuing a Business
When business owners are asked, "What's your business worth?" the overwhelming answer is, "It depends". Business owners are generally focused on immediate needs and often do not see the benefit of valuing their businesses. Knowing the value of a business is an important planning tool for business owners and is required for a number of situations. The following are examples of such situations.
Succession Planning - Passing the business from one generation to the next often presents difficult issues to address and hurdles to overcome. Strategies to transfer ownership should start with properly valuing the business.
Estate Planning - For many business owners, a company is the largest asset in his or her estate. This will have a large impact on estate taxes and planning in the most tax-efficient manner is crucial. To effectively plan, a business owner should have an idea of the value of their business.
Buy-Sell Agreement - A binding agreement between co-owners of a business often governs what happens in the case of unforeseen events such as death, disability or departure. Such agreements are important to have in place and should have a clause indicating how to determine the price to be paid for an owner's interest. To assist in determining the price, a business valuation should be performed and updated annually.
Sale of Business - A business owner should have an idea of what the business is worth before it is offered for sale. Oftentimes, an owner believes a company is worth far more than any investor would pay.
Strategic Planning - Nearly all companies are in business to maintain or increase the value of the company. Management of publicly-traded corporations are constantly monitoring stock price. Why should this be different for a privately owned business? A business owner should understand what his or her company is currently worth and the key drivers for increasing that value.
Business owners should not underestimate the importance of understanding and knowing the value of their business. A business valuation can lead to proper planning and conserving of wealth of the business and owner. Please contact me, John Maloney, CPA, CFF, CVA, at 215-675-8364 for assistance with business valuation or forensic accounting needs.
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