An article by Crain’s Detroit caught our eye recently. It’s a great, quick writeup on some of the reasons that people and companies engage us for business valuation services. We find that in casual conversations a lot of people focus on business purchases or selling a business as the main driver of ordering a valuation.
Crain’s astutely points out a few other items:
- Estate and gift planning
- Bringing in a partner / stock incentives
- Exit planning
- Leverage in loan negotiations
We’d add a few more:
- Buy-Sell Agreements. We do a lot of work related to partnership disputes. Often underpinning those disputes are a badly drafted buy-sell agreement, an outdated agreement, or simply the fact that one was never drafted. While we can always work on a valuation services engagement that’s triggered in the buy-sell agreement, consider engaging a valuation at the time of drafting to ensure all partners have reasonable expectations.
- SBA Financing. Depending on the size and characteristics, the SBA 7(a) loan program has a hard mandate for a third party appraisal
- Purchase Price Allocation
- Financial Reporting
Are 409(a) Stock Option Valuations Really Optional?
And finally, one comment on the Crain’s article. Crain’s mentions that valuation services might be required to “establish a number” for issuance of stock options. We’d suggest that a valuation in these situations is likely not an option as outlined under Section 409(a) of the Internal Revenue Code. Non-qualified, deferred compensation likely requires a valuation – check with your legal counsel to be sure.