Wednesday Wisdom From Wouch Maloney - CPA Firm

When are Business Valuation Services Needed?

We have seen a tremendous increase in the need for business valuation services in recent months. Many business owners are reacting to a flurry of financial and non-financial activity occurring in the last few years. That included both the unpredict-ability of tax rates, the low cost of financing and the common transition of Company leadership to a new generation.  Is a business valuation something you need now?

What is a business valuation?

A business valuation is the process of estimating the value of a business by analyzing the economic performance of a business, the nature of the business, the industry in which it operates, and the influences of competition. 


Although no certification is needed to perform a business valuation, it is highly recommended you engage a certified professional to prepare the business valuation to ensure the work follows professional standards and is defensible in front of the Internal Revenue Service and in a court of law.

When is a business valuation necessary?

You may be asking yourself, when would I need a business valuation? The following are some of the reasons one might need a business valuation:

  • the sale or purchase of a business
  • adding new shareholders or partners
  • the termination of shareholders or partners (retirement, disability, death or early termination)
  • estate planning
  • gifting
  • litigation

Sale or purchase of a business

The sale or purchase of a business is probably the most common reason many get a business valuation.  A business valuation can assist you in deciding if the price is right.  A business valuation is also prepared during a transition period of a Company.  For instance, the addition of new partners as well as the termination of a partner’s interest may be warranted upon a triggering event such as retirement or death of a partner. 


In any of the above situations, it may be necessary to value the business in accordance with terms of a buy-sell agreement or to establish a value of a Company to address how partners will receive their value in the future upon a triggering event.

Estate planning

Another reason to prepare a business valuation would be for estate planning purposes. For most small business owners, the most valuable asset they own is their business. Depending on how much the business is worth, one’s estate might be over the exemption amount and may have to pay estate tax.  

The current federal estate exemption for 2021 is $11.7 million (adjusted for inflation each year) per individual. The current exemption, which was doubled under the Tax Cuts and Jobs Act in 2017, is set to expire on December 31, 2025 and revert back to $5.49 million (adjusted for inflation) per individual.


Gifting is another reason for a business valuation. If you are so inclined, gifting can have some advantages. First, your loved ones could realize an immediate benefit from a gift. Second, appreciation of gifted assets could reduce your taxable estate and the potential estate taxes. The IRS has guidelines which need to be followed when preparing a business valuation for gifting purposes so be certain to use a qualified valuator. Consider gifting if it makes sense for you and also whether such gift allows you to transfer wealth efficiently under existing estate tax rules. 

A potential wrinkle to estate planning today is the recent announcements on tax law changes. President Biden’s “Green Book” proposed a tax plan that would eliminate the “step-up” in basis and trigger estate tax at long term capital gains rates immediately upon death or the conveyance of a gift.  Individuals would have a $1 million exclusion to offset against appreciated assets. Also, although not included in the “Green Book” tax plan, President Biden has proposed reducing the estate tax exemption.


If you believe your estate will be over the reduced exemption amount or if you have significantly appreciated assets, then it would be a good time to start planning. 

Valuations for litigation

You may also need a business valuation for litigation purposes. Litigation involving the following are most common:

  • a partnership dissolution
  • shareholder disputes
  • damages
  • divorce

In all of these scenarios, the value of the business might be the primary point of contention. A professionally prepared business valuation should help reach a suitable resolution for all parties involved.

Finding the right team to perform a business valuation

Here at Wouch Maloney, our professionals include Certified Valuation Analysts (CVA) who are willing and able to help you prepare a business valuation for any purpose. In addition, one professional also holds the Accredited in Business Appraisal Review (ABAR) credential, awarded by the National Association of Certified Valuators and Analysts (NACVA), which allows him to perform the review of a business valuation prepared by another professional.


If you are thinking about retirement, selling or buying a business, gifting, or any other life changing activities that may require a business valuation, please contact us at any time. We will be happy to discuss how our valuation team can help with your business and personal financial needs.

DISCLAIMER: The WM Update, WM Wednesday Wisdom, WM Daily Update COVID-19, COVID-19 Business Resources, COVID-19 Client News Alerts and other related communications are intended to provide general information, including information regarding legislative COVID-19 relief measures, as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.