MLR

When is a business valuation needed?

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The prospective sale of the company might seem to be the obvious reason for getting a business valuation, but there are many other reasons as well.

money on chess board

Other reasons a business valuation is needed include:

  • Estate, gift and trust planning – To determine estate taxes, a value must be placed on all assets, which include the business.
  • Buy/sell agreements – A buy/sell agreement is an understanding between shareholders of a closely held business that specifies the terms and prices of a buyout when one or more shareholders want to sell.
  • Mergers or acquisitions – If the merger is through the exchange of stock, both companies must be valued to establish a fair exchange.
  • Divorce settlements – Typically, a business must be valued during divorce proceedings. The business is usually given to one spouse while the other receives assets of equal value.
  • Litigation – In addition to divorce, there are other types of litigation that require a business valuation, such as eminent domain proceedings and insurance claims for lost business.
  • Employee stock ownership plans (ESOPs) – An ESOP is a retirement plan in which company stock is donated instead of cash. The value of the stock must be determined annually to establish the employer’s deduction for the contribution.
  • Initial public offerings – When a company goes public, the corporation’s stock must be valued to set the initial offering price.

Because of its in-depth analysis of all factors affecting your company’s performance, a business valuation is an excellent starting point for developing a strategic plan for your company’s future. A valuation will point out areas of weakness and strength, as well as possible opportunities for future growth.

Many businesses use valuations on a regular basis to objectively measure their company’s performance.