Business Valuation Blog | Understanding Buying / Selling a Company

What Happens to the Business After You're Gone? Estate Settlement Valuation

Posted by Business Valuation Specialists LLC on Aug 5, 2019 8:00:00 AM

estate settlement

When a business partner or owner dies unexpectedly, it's important to decide what needs to happen next relatively quickly. A number of different tasks must be undertaken to stabilize the business as quickly as possible while determining its future course. But if the business is part of an estate that is being split among multiple heirs, determining that direction can be difficult if not impossible. Fortunately, estate settlement valuation can make the process go more easily.


What Happens to the Business After You're Gone? Estate Settlement Valuation

Let's take a look at an example of what can happen during estate settlement. After a business owner dies, his business is to be split between three children. One has spent several years in the business and has a vested interest in keeping it in operation. The second is close to the family but is more interested in receiving their legacy from the business within the next couple of years and wants to sell to the right buyer. The third has been caught up in caregiving for the business owner, is exhausted and simply wants the company sold as quickly as possible, so he can get on with his life.

With these different approaches, the value of the business will vary greatly. The first child will be interested in what the future value of the business will be, which is determined by calculating the income value of the business. The second child wants to wait for the right buyer and expects to receive fair market value for the business. The third child simply wants to be done with the process and will settle for the liquidation value of the business.

The first child could offer to buy their siblings' portion of the business, but that may require capital that the business does not currently have available. A loan could be pursued, but at what value? Future income? Fair market? Liquidation? This is where a business valuation specialist can provide valuable information and insight to help make the process move more smoothly. Having a valuation performed as part of the estate settlement provides a number of benefits to the family:

  • It tells the current value of the business, which may be otherwise unknown, providing valuable financial information to help with the decision-making process.
  • It can provide multiple scenarios, allowing the family to decide whether they should sell now or whether it makes sense to wait for the right buyer to receive a higher offer.
  • It provides proof of value for a financial institution or court of law, making it easier to secure a loan or document value for a court case.

By using estate settlement valuation as a tool to determine business value, you can more easily determine the direction the business should take in the future. However, if you need this type of valuation performed, that doesn't mean you can simply talk to a realtor or other individual who doesn't understand the nuances of business valuation and expect to get a solid calculation that will bear out in reality. For situations like this where legal proceedings may come into play, it's vital to only work with a certified business valuation specialist to ensure that the figures you receive are accurate and will hold up to strong scrutiny.

Topics: Estate Settlement