Reasons To Value A Business
The valuation of a business is not just for a business owner preparing for a sale. In fact, there are numerous business and legal situations that require a detailed valuation. Sun Business Valuations, LLC provides valuation services for a variety of purposes. Client’s typically seek to value a business in regards to:
By taking steps early on to value a company, you establish a reasonable starting point for discussion between all parties seeking a fair and amicable agreement.
Shareholder and Partnership Buyouts and Disputes
Partner/shareholders may decide to exit a partnership or offer an equity position to someone else. Proper third-party valuation and facilitation services can result in a fair and amicable transaction.
Merger & Acquisitions / Business Sales
If considering the acquisition or sale of a business, or portion thereof, valuation of a business is a critical tool. In typical mergers, an independent market valuation of each company is a requirement to determine equity distribution. A valuation can serve to bridge any discrepancy in the two party’s opinion of value and provide a reasonable starting point for discussion.
Buy-Sell and Shareholder Agreements
Many buy/sell agreements require a business valuation so that ownership will be transferred at fair market value. Agreements between partners or shareholders (i.e. a buy-sell agreement) should be based upon a business appraisal rather than a simple formula. The formula approach may yield an unrealistic value, if there is a substantial change from the time of drafting to implementation. A valuation enables cross benefit life insurance requirements to be more readily determined.
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 value a business and facilitate an amicable and equitable distribution settlement.
Economic damages often need to be assessed in commercial litigation proceedings. Sun can provide dispute resolution by providing facilitation and valuation services in a variety of situations.
Estate & Gift Tax
Gifting of closely held stock and partnership/LLC interests requires an independent valuation, to provide an objective, defensible analysis and certification as to the fair market value of the business at the time of the ownership transition.
Minority Shareholder Disputes and Litigation
Situations can arise when a minority shareholder is not receiving any dividends or other return on his or her investment in a closely held company; and majority owners are receiving substantial sums benefits from the company. In this type of litigation, a comprehensive valuation is a necessity.
Increasingly, lenders will request an independent market valuation prior to approving a small business loan or credit line. It is a valuable tool to include in a loan package when approaching the lender.
Analysis and Critique of Opposing Expert’s Business Valuation Reports
A critique report will identify and analyze what is correct, incorrect, missing and/or misinterpreted in an opposing valuation expert’s report. The valuation critique can identify specific issues or provide an overall opinion as to whether the report being critiqued is in fact reasonable. It is useful for an attorney to have a critique report of a valuation report prepared by the opposing side.
Conversion of a “C” Corporation to Subchapter-S Corporation Status
Businesses that are planning to convert from “C” to “S” or “LLC” corporate status should have a valuation done as of the date of the change. If the firm is sold prior to the ten year holding period, there is a tax due on the built-in gain of value from the point of conversion. An independent valuation as of the date of the conversion substantiates the tax calculation for the IRS.
Personal Financial Management
A business represents a typical owner’s single most valuable asset. Despite this, most business owners have no realistic concept of the true market value. A valuation enables informed critical decisions, such as proper timing to pursue an exit strategy.
Financial and Tax Reporting
Certain financial and tax reporting situations require qualified, independent valuation services. When a company issues stock options, or transfers or sells equity interests, a valuation is required for the company to accurately report related compensation expense and the recipients to accurately report income.
Want To Know The Value Of A Business? Call Us Today.
Knowing the value of a company is essential. Call us toll free (800) 232-0180 to speak with a certified Valuation Analyst who will answer all your questions and explain how convenient and confidential it is to have Sun Business Valuations prepare an appraisal for your business.