Knowing the value of your business is an integral part of doing business. However, there is no active market to gauge the value of closely held businesses. Many owners of closely held businesses have the need to determine the correct value of their interest. Business valuations of closely held businesses are performed for many purposes including tax, litigation or transactional purposes. Our services can help business owners determine business value, identify ways to grow the value of the business, buy other businesses, or ultimately exit the business.
Need for business valuation
The need to value a closely held interest for tax purposes arises when valuing the interest held by a decedent in his or her estate, valuing a gift of a closely held business interest, valuing closely held stock transferred to an employee in connection with a stock bonus plan or stock option plan, valuing the allocation of tangible and intangible assets in connection with a sale, valuing the built-in gain when electing to convert to an S Corporation, etc.
Litigation may arise in the event of disputes between business owners, bankruptcies, divorce, dissenting shareholder cases, shareholder oppression, breach of contracts, lost profits, etc. When a transaction involving closely held stock is contemplated, the buyer or the seller will generally seek the opinion of a valuation expert to assist them with valuing the sale or purchase of a closely held business.
Some business owners engage business valuation professionals to track the value of their businesses and provide them with strategic objectives to enhance the value of their business. These entrepreneurs have a clear growth strategy, they use valuation professionals to help them identify their value drivers, they eliminate barriers that erode value, and they use valuation professionals to monitor value and help them increase the value of their company.
The valuation process must adhere to valuation standards prescribed by nationally recognized valuation organizations. The valuator must consider the asset, income and market approaches and apply generally accepted valuation principals and methodologies in arriving at their valuation conclusion. It is imperative that the valuator gains a thorough understanding of the owner’s industry and the internal and external economic factors affecting the success or failure of the entrepreneur.