Top 10 Reasons for a Business Valuation

By Richard P. Feilteau, CPA, CVA

How much is your business worth? That is not a speculative question, or one that should be answered with a “ballpark” guess. Attaching an accurate valuation to a company is a critical part of ongoing business strategy.

  1. Exit Strategy Planning. If you are planning to sell your business it is a great idea to set a base line value for the business and develop a strategy to improve the profitability to increase the value as an exit strategy.
  2. Buy/Sell Agreements. If you are in a partnership or LLC, a buy/sell agreement between principals can help to avoid future disputes. A mutually agreed upon value is the starting point for an agreement that is acceptable to all parties.
  3. Shareholder or Partnership Disputes. Then again, things don’t always work out. If an owner decides they want out of the partnership, an independent business valuation is necessary to arrive at a fair settlement of ownership interest.
  4. Mergers and Acquisitions. If your growth strategy includes buying or merging with another company, a business valuation will help you determine if the price you are being asked to pay is a fair one.
  5. To Determine the Annual Per Share Value of an Employee Stock Ownership Plan (ESOP). In order to meet ERISA and IRS requirements, shares of Employee Stock Ownership Plans must be valued by an independent valuation expert on an annual basis to establish a fair stock price.
  6. Funding. When negotiating with banks, venture capitalists or other prospective investors, an objective valuation will help in raising capital.
  7. Litigation Support. An objective appraisal can help in negotiating a pretrial settlement or, if the matter goes to trial or arbitration, expert testimony of a Certified Valuation Analyst can strengthen a case where the value of a business is an issue.
  8. Gift Tax Planning. Avoid problems with the IRS by having an accurate, defensible and documented value.
  9. Estate Planning. Nobody wants to leave their heirs with the burden of paying heavy taxes on a business that was undervalued. Knowing the value of your business is necessary in order to adequately fund a future estate tax liability.
  10. Marital Dissolution. A fair market value of the business interests must be established for an equitable division of assets.

A business valuation is a complex financial analysis that should be performed by a qualified valuation professional with the appropriate credentials. There are many benefits of using a qualified professional, such as:

  • Minimizes the financial risks in a litigation matter
  • Minimizes the potential tax in gift or estate tax situations
  • Provides defense in an audit situation
  • Helps owners negotiate in a sale of their business

If you’d like to learn more about business valuations, please visit the Business Valuation Services page of Gray, Gray & Gray’s website or contact us at (781) 407-0300.
Richard P. Feilteau, CPA, CVA is a partner with Gray, Gray & Gray, LLP and a Certified Valuation Analyst.

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