One of the most common misconceptions we see is that folks think that a business valuation is only required if you are buying or selling a company. And of course – business valuations are often required to get an idea of value when approaching a transaction. . In fact, some times your banker or insurance company requires you get one. But this scenario is really just the tip of the iceberg.
Reasons for Valuations
We tend to lump the “reasons” into three categories: transactional, litigation support, and tax matters. Let’s drill down further.
- Buying a Company
- Selling a Company
- Shareholder Buy-in / Buy-out
- Capital Raise
- SBA Loans
- Bank Financing
- Divorce / Matrimonial Matters (and occasionally prenups!)
- Commercial Litigation
- Shareholder Disputes
- Bankruptcy (both personal and business)
- Commercial Damages
- C-Corp to S-Corp conversions
- Gift and Estate Tax
- 409(a) / Stock Options or other equity comp
- Purchase Price Allocation
Let’s Get Real
So what do these look like in real life?
- The Unhappy Ending. A situation we’ve run into more than once… what happens if the business owner unexpectedly dies? A valuation can help your family make informed decision as to how to proceed with the business.
- The Unexpected Offer. If your business is even marginally successful, there’s a good chance that someone will eventually make you an offer (and often with a tight deadline). Having an understanding of value helps you understand if those conversations are worth entertaining.
- Shaky Marraige. If your marraige is likely to end, your business is likely to be a central point to the proceedings. We’ve seen proper valuations impact marital dissolutions by hundreds of thousands of dollars.
- Are you ready to retire? Most business owners have their retirement tied up in illiquid assets- namely, their business. If your retirement plan is to sell your business, isn’t it a good idea to know how those funds will support your golden years?
Have thoughts on some other reasons? Give us a ring, or leave a comment below.