Business Valuation Blog | Understanding Buying / Selling a Company

Death and Taxes: Preserving Your Business Through Estate Planning and Taxes

Posted by Business Valuation Specialists LLC on Apr 27, 2016 10:00:00 AM


Our world has two things you can always count on: death and taxes.  Unfortunately, many people are unwilling to discuss end of life planning, whether it's those who are faced with health problems and their own mortality or those who will be left behind who do not want to discuss the loss of a loved one. But failing to put a plan in place to deal with this eventuality can leave your business open to serious problems, including insolvency from death taxes. When it comes to estate planning and taxes, it's vital that you take the time to determine the value of a business before the time of need so that you can plan for financial methods that will ensure the continuity of your business. 

Death and Taxes: Preserving Your Business Through Estate Planning and Taxes

What exactly does the valuation of a company have to do with estate planning and the taxes that are incurred when a business is passed to the next generation? Quite a lot, as it happens. Business valuations provide a legal basis for the value of a company, allowing taxes to be charged based on the company's actual value instead of an incorrect estimate based on tax accounting. It also helps you determine areas where your company is strong and where it is weak, allowing you to get it into shape before worrying about passing on your legacy. By getting a valuation from business appraisal specialists, you can ensure that you have some financial means in place to deal with taxes that will fall into play at the time of death. Here's' a little more on each of these areas:

  • Legal basis: By having a company valuation performed by a certified business valuation specialist, you can ensure that your company's value will hold up in court. A certified business valuator has gone through a vigorous training process to ensure they're using the proper methodology to value your company. Because the national accreditation organizations have certified these methodologies, the business appraisals that are calculated using these methods hold legal weight.
  • Strengths vs. weaknesses: A business appraisal looks at all aspects of your business and can help you determine where it is strong and where it needs work. Because the first few years of independent operation can be somewhat rocky for new business owners or even for those who have experience in the company but are taking the reins for the first time, having your company operating in a position of strength at the time of transfer can help ensure your company remains solvent and your legacy remains intact.
  • Estate Planning: Part of estate planning means planning beyond the death of the current business owner. In its most basic, estate planning should include contingencies for taxes that will come into effect at the time of death, when a business passes to your heir. What legal challenges will they face? Have you outlined who you're leaving your business to? What about taxes that will come into effect? A good business valuation allows you to work with an accountant to estimate the amount of death taxes and set up contingencies to ensure those taxes can be paid.

Though estate planning and taxes are a delicate subject, it's important that you look at having a quality company valuation performed to ensure that your legacy will live on after your passing. If you haven't had a chance to have a quality business valuation performed, please feel free to contact our valuation specialists to ensure you have the information you need to properly plan your estate.

Topics: Business Valuation, estate planning, taxes