When you're running a business, wondering what your company is worth is a common question. It's one that business appraisal can answer to a high degree of accuracy, but most business owners don't have a business valuation performed except in some specific circumstances. But what are some of the common reasons for business valuations? Here's a quick list of scenarios when this type of appraisal is performed and how it benefits the business in general.
What are some common reasons for business valuations?
- Selling a business. How do you determine the selling price of your company? A business valuation helps to determine a fair market value based on your company's specific strengths, weaknesses, assets and liabilities. When you get a business valuation performed, you'll not only gain insights into these areas, you'll be able to improve them to ask top dollar for your business.
- Dissolving a partnership or marriage. Invariably, the individual who is keeping the company wants their loyalty rewarded by paying very little for their partner's share, while the individual who is leaving wants the best profit from their share. Because this can be such a problematic issue, there are often requirements for business valuations performed for this reason to ensure fair market value is determined and both sides are dealt with fairly.
- Death of the owner. When a company's owner passes away and the company is willed to the family, not all family members will want to stay in the business. There can be a lot of pressure brought to bear on the executor of the will to quickly sell and settle the estate, but having a business appraisal performed allows everyone to understand what the company is worth and whether they want to take a large cut in price for a short sale or wait for the best possible price from the right buyer down the road.
- Retirement and passing on a legacy. You've worked hard for years to build up a legacy to pass on to the next generation, and now that you've reached your golden years, you want to make the process as quick and painless as possible. Business valuations can help you determine the value of the gift you're passing on, any taxes you or your heirs will need to pay on the transfer and similar aspects, helping you plan for those costs ahead of time.
- Seeking financial backing. When you work with a bank or other financial institution, they often require a business appraisal be performed to ensure that you're not borrowing more than your company may be worth. There are any number of areas where your accounting reports may be off, whether due to older equipment that has been fully depreciated and is still going strong or real estate assets that have lost significant value over the years. By getting a report from a certified appraiser, they know that the figures were determined using standardized methodologies that will hold up well to scrutiny.
You don't need to use any of these reasons for business valuations, however, because having an appraisal performed helps you keep in touch with where your business is going. When a certified business appraiser develops a report for your company, you'll often find there are many insights and aspects you weren't aware of that can help boost your company's overall financial health. Take advantage of this information and see where it can take your company.