Business and asset valuations for financing
Increasingly, lenders require an independent business valuation prior to approving a business loan or a credit line.
Sale of a company
Determining value is the first step in the process of selling a business. A formal valuation performed by an experienced business appraiser will determine the fair market value of your company. A valuation will prepare you to respond to buyer concerns by addressing your company’s value and risk drivers. It will also identify sources of value and areas of your business that can be improved. Knowing the fair market value of your business will prepare you to be a better negotiator.
Exit strategy planning
Most business owners fail to plan ahead for the time when they will decide to sell their business. Often when they make up their mind to sell, the business isn’t worth what they had hoped or isn't even marketable. Don’t wait until a few months before you plan to retire to find out whether or not you can sell your company at a price that’s acceptable to you.
Nationally, only 20 percent of small to medium-sized companies listed for sale actually sell. You don’t want to be part of the other 80 percent. Unfortunately, ownership transfers are not always voluntary. Often, an unforeseen event, such as the owner’s death, forces the transfer of ownership.
Your business planning should begin well in advance of your exit from the business; and, it should address both voluntary and involuntary transfers. Your planning should actually begin on day one. A formal valuation with annual updates should be one of the most important tools and an integral part of on-going strategic planning and/or exit strategy planning. Don’t leave your spouse or heirs in the position of having to make the biggest business/financial decision of their lives without accurate information as to the fair market value of your ownership interest.
If your business has more than one shareholder, a valuation is required to establish fair market value of the business to determine equity distribution when specified trigger events occur. Also, the valuation enables life insurance requirements—a funding mechanism for your buy-sell agreement—to be more accurately determined and updated.
Estate and gift tax
Estate tax returns require an independent valuation as of the date of death. Making a gift of closely held business interests requires an independent valuation of the business at the time of ownership transition.
C Corporation to S Corporation conversion
A business planning to convert should have a valuation done as of the date of the change. If the firm is sold prior to the 10-year holding period, there is a tax due on the built-in gain of value from the date of conversion. An independent valuation substantiates the tax calculation for the IRS.
Employee stock ownership plan
There are numerous financial and tax reporting situations that require qualified, independent valuation services. Examples include issuing stock options or transfers or selling equity interests. A valuation is required for the company to properly report related compensation expense, and for the recipients to accurately report income.
A business valuation is often needed to establish economic damages in commercial litigation proceedings or to determine equitable distributions in shareholder disputes. Insurance purposes. Increasingly, insurance companies require appraisals be done on equipment and/or businesses that are insured.
Intellectual property valuation
In today's increasingly complex and highly regulated business environment, the accurate and complete valuation of intellectual property is essential.
A machinery and equipment appraisal or business valuation is almost always necessary during a foreclosure of a business to determine the fair market value of all assets.
Divorce and estate settlements
A business is typically the largest joint marital asset and the most difficult to value. A business valuation will either be court appointed or voluntarily engaged to facilitate an equitable distribution settlement.