Business Valuation Blog | Understanding Buying / Selling a Company

When it is time to close a business and there are no realistic sale options, there are several steps needed to officially dissolve the company, so no loose ends come back to affect you in the future. One of those requirements is filing forms with the IRS and/or your state for final tax settlement purposes. Depending on the structure of your prior operation, you may need to obtain an independent business appraisal as part of this process.

Here are a couple of things to consider when a final valuation comes into play.

Transfer or Sale of Assets

If your business owns a lot of equipment or vehicles, you will look to estimate a final value if you plan to sell them or transfer the property to another entity, such as a new company, or to yourself. This will show a clean break between when the old business was responsible for the assessment and when the new owner took over responsibility for them.

A machinery & equipment appraiser can complete this report as part of the overall business valuation.

If you own intangible assets such as patents, trademarks, domain names, customer lists, or transferable software, the value of these would be estimated by the business appraiser as part of any remaining goodwill of the company.

Valuation Methodology

The focus of the business closure appraisal will likely be solely on the remaining tangible and intangible assets; however, if there are any remaining accounts receivables, payables, long-term debt, or revenue streams not yet fulfilled, these will need to be considered as well.

The asset approach will probably still be the driving methodology utilized by the appraiser while adjustments are made to take these other factors into account.

In an ideal scenario, when it is time to move on from a business, you will be able to find a buyer that allows you to maximize the company's remaining value. If shuttering the operation is your only option, there will likely be additional housekeeping tasks to take care of before you segue to the next chapter of your career.

To learn more about these requirements, consult your accountant and an independent valuation expert who can provide further insight.

In the aftermath of the pandemic and in consideration of continuing economic hardships for many businesses in highly affected industries, such as restaurants and entertainment venues, the reality is that a lot of companies did not survive. These unprecedented times saw a large increase of small business owners struggling to stay afloat in hopes of a turnaround that ultimately took too long to come about.

Despite short-term relief funding programs made available by federal and state governments, there has been a significant increase in small business closures beginning in mid-2020 and continuing to this day. One of the many obligations business owners are required to undertake when closing their company involves a formal discharge and dissolution filing with the IRS.

There are several filing forms involved and depending on the existing documentation, owners may need to engage with a certified business appraiser to independently declare a final value for tax purposes. Even though it is evident that little to no revenue is being generated from business operations, there likely remain certain assets and liabilities which need to be declared as part of these final steps.

As painful as it may be, a business appraiser will need to be engaged and review these documents as part of their work effort to establish a fair net value for the remaining tangible and intangible property. Essentially, the focus is on what remains of the business that can be resold as part of the closure.

In many cases, this would be tangible property only, such as real estate, buildings, machinery & equipment, and personal property. If these assets have recently been appraised or are reasonably depreciated and accounted for on the company books, the business appraiser can use this data to document under an Asset Approach to value. This approach will likely be the only one utilized given the lack of income and external market comps considered under more normal business valuation circumstances.

Other factors will be taken into consideration that pertain to the closure status which will hopefully soften the final blows that come with this process. Making the decision to close your small business for lack of profitability, or for any other reason, can be a heartbreaking experience, and as business appraisers, we will do all we can to facilitate this process for small business owners during these trying times.

<p>When your company is dealing with tax issues, there is any number of issues that may come up. Using the right schedules, withholding the right amounts, making the right deadlines are all among them. But sometimes it's vital that you be able to prove the value of your business beyond a reasonable doubt to a tax agency. When this happens, it's vital that you get a business appraisal for tax purposes. Here's why:</p>

<h1>Why Should You Get an Appraisal for Tax Purposes?</h1>

<ul>
<li>Starting with an accurate business value. When you purchase a business, what's it really worth? If you bought into a company that was overpriced but potentially an okay deal at the time because market conditions said you'd clear the excess eventually, or if it was bought at a song during a slump in the economy, how do you prove the actual value? A business valuation helps to prove what the company is actually worth beyond the purchase price.</li>
<li>Fighting bad tax assessment. We've all known someone who received one - a tax assessment that was so far out of line as to be ridiculous. One contractor told the story of how his warehouse had been assessed at such a high rate, he could have torn it down and rebuilt it twice for what they were assessing it at. A business valuation helps fight bad tax assessments with solid documentation.</li>
<li>Adjusting value for market conditions. Has your industry gone into a bull or bear cycle lately? If it has, it may have affected your company's value significantly, either to the positive or negative. But how do you calculate those changes in value? When you have a business valuation performed, you can then adjust the value of your business in your books to account for these conditions, which will hold up with tax agencies.</li>
<li>Providing proof of value for an audit of past years. Sure, the IRS thinks you have a mistake on your books from 2008, but was your company really worth that much at that point in the recession anyway? If you didn't adjust your books at the time, a business valuation specialist can go back and make adjustments to reflect your company's actual value in the past while providing quality documentation with tested methodologies&nbsp;for your records.</li>
<li>Proving changes in value in the future. You hope your company will be worth more in the future, but by how much? When you have a quality business valuation performed by a certified business appraiser as part of a series of valuations, it's very easy to document your current business' value so that you have a solid basis to judge change in value over the years. This allows you to adjust your books accordingly and get a big picture of what different decisions have done to shift value for your business.</li>
</ul>

<p>Your business needs protection, often from the same government agencies that are ready to overreach their authority and expertise in a wide range of issues. Getting a business appraisal for tax purposes helps you control your company's tax liability when an inaccurate assessment or estimate of value is made by the tax agency. However, the appraisal report only holds up when it's been prepared by a certified business valuation specialist, giving you the benefit of tested methodologies to back up your valuation.</p>