You probably think you already know the value of your business. After all, who would know it better than the owner? The reality is, however, that there are several factors that impact the value that many business owners are unaware of. In addition, the emotional investment one has in his business may cause him to underestimate risks or overestimate cash flows. Why is it important to know the true value of your business? Here are a few compelling reasons.
You may choose to gift a percentage of your business during your life, helping to minimize estate taxes at death. Right now is a great time to take advantage of this strategy, as one can currently gift up to $5 million in value without paying taxes on the gift for the remainder of 2012. Typically, minority interests in a business are gifted, enabling you, as the owner, to take advantage of minority and non-marketability discounts. Valuations performed for this purpose require the assistance of an experienced valuation specialist to justify the concluded fair market value to the IRS.
Sale/transfer of Business
Did you ever dream of selling your business down the road, or of being bought out by your business partner? Business owners may also consider selling a portion of the company’s stock to a key employee, or gifting a percentage of the shares to a family member who works in the business. This ensures continuity if the majority owner is ill or passes away. Another benefit is that the key employee or family member who is now a shareholder will be even more loyal, industrious and pro-active as an equity owner.
A well-organized documentation of your company’s historical financials and future prospects, which is part of the professional valuation process, can help maximize value. Moreover, the business valuation process can help you learn about factors under your control right now that can increase or detract value.
Many activities involving tax consequences, such as providing stock options to your employees, require a business valuation. This is to prevent the assignment of an exercise price that’s lower than the stock’s fair value. Entity structure modifications such as the conversion from a C corporation to an S corporation may also require a business valuation to determine the amount of built-in gains in existence at the time of the conversion.
We at Urbach and Avraham have been helping businesses with their valuation needs for over 25 years. Partner Jeffery Urbach teaches business valuations and litigation support as a Senior Instructor for the National Association of Certified Valuation Analysts (NACVA). Steven Citron, our Tax Manager, is also an ABV (Accredited in Business Valuations). Jeff, Steven and staff have valued a wide variety of businesses, professional practices, and Family Limited Partnerships.
Call us today and let our knowledgeable, experienced business valuation team help you with this important financial decision.