As a business owner, you may already know…that the foundation of many sound business strategies — as well as many aspects of personal planning — is built upon an accurate estimate of the value of your business.
You likely know the approximate value of your home, your car, and your retirement account, but the value of your largest asset — your business — may elude you. And, while you can’t look up the value of your business on one of the public exchanges, you can obtain an accurate estimate of the value of your business through proven business valuation techniques.
While you may have some idea of what your company is worth, it’s less likely that you can accurately assess the “fair market value” that your business could be sold for if put on the market in an “arm’s-length” transaction. Fair market value is a relatively simple concept to understand, but in reality it is difficult to determine because a company’s actual fair market value depends on many variables, including the state of the economy, if the owner feels pressured to sell, and how quickly a qualified buyer can be identified. Also, legal and tax rules can complicate the valuation process.
While it is conceivable for a buyer and a business owner to decide quickly between themselves (on the back of a napkin, even) a sale price that meets both of their needs, the rights of a business owner’s spouse may come into play. In addition, the presence of a minority owner may impact the purchase price. Also, the Internal Revenue Service (IRS) has an interest in business valuations because they impact gift taxes, estate taxes, and income taxes.
For these reasons, if you are planning a sale, engaging in the succession planning process, implementing a buy-sell agreement, or putting an estate plan together, you should consider hiring a qualified business appraiser. The appraiser will use various techniques to determine the ultimate value assigned to your business. Your advisors can assist you in locating a qualified business appraiser, facilitate communications between you and the appraiser, and integrate the value determined by the appraiser into your succession, buy-sell, and estate plans.
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