While publicly traded companies’ share prices are publicly disclosed, the value of ownership stakes in private companies is not readily available. When accurate fractional values are needed, independent valuations are necessary.
The benefits of business valuations are numerous, encompassing professional and personal motivations. Valuations are often used to identify value propositions, obtain insurance coverage or financing, or evaluate the viability of potential buyouts. Here, we will discuss the importance of business valuation for buyers and sellers.
Easier M&A
Along with the estimates they offer, business valuations give owners additional operational information. Valuation specialists use their marketplace knowledge to weigh potential returns against risks. With historical valuations, business owners can quickly evaluate the viability of mergers and acquisitions when buying or selling.
Smooth Succession
When planning a company’s future after an exit, owners face difficult choices. Common succession options include employee stock buyouts, outsider share sales, and transferring interests to relatives. Valuations ensure that transfers are priced accurately and all parties are well-informed. If you plan to transfer ownership, obtaining a valuation sets the baseline for growth and exit strategies.
Tax Planning
In federal tax law, gift and estate taxes are grouped because they share lifetime limits and rates. The effects of these taxes on business strategies require constant monitoring, as exemption amounts and rates change from one year to the next. Business valuations facilitate strategic tax planning as they help owners understand asset values and potential liabilities.
The Division of Marital and Business Assets During Divorce
When divorcing spouses share ownership interests in privately held companies, the value of those interests determines equitable asset division. Contentious divorces often involve disagreements over business income, and the results of independent valuations are used during settlement negotiations or court trials.
Employee Ownership, Stock Gifts, and Incentives
Owners often use their shares to attract top talent and reward existing employees. Business interests are non-cash compensation, and as such, certain rules apply. Owners can offer bonuses linked to the value of their stakes, or they may offer equity purchase options. Valuations ensure legal compliance and the equitable settlement of these plans.
Investment Strategies for Owners and Outsiders
Organizations sometimes need funding for development plans, and potential investors use valuations to assess their financial health and growth prospects. Business valuations determine the value of investments and provide insights during negotiations. If you’re in an expansion and need funding, consider scheduling a business valuation.
Resolving Disputes In and Out of the Courtroom
As in life, disagreements are common in business. Completion deadlines are missed, contract disputes arise, and partnerships dissolve, but valuations demonstrate the significance of these actions and determine fair compensation for involved parties. Valuations are often used in court proceedings, arbitration, and settlement negotiations. If your company faces a legal dispute, consult an attorney or an accountant on how a business valuation may strengthen the case.
Business Valuations Help Owners Reach Their Goals Fairly and Legally
These are just a few reasons for business owners to consider scheduling valuations. With help from our dedicated team, you can navigate mergers, acquisitions, buyouts, and exits equitably, safely, and legally. Request additional business valuation information via our online contact form or call to schedule a consultation with one of our specialists. We are pledged to the continued success of your business.
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