Five reasons a certified business valuation should be on your exit planning list
No matter how near or far your exit may be, knowing the true value of your business is key to building and reaping the rewards of your life’s work. Here are five reasons to secure a certified business valuation – sooner rather than later.
1. Know the full, fair value of your ownership interest. Rules of thumb and casual estimates are generalities that can undermine planning and expectations. Put yourself in the shoes of a sophisticated buyer. Would you buy a business without first determining it’s true worth?
2. Is your business worth enough? How much will you need from the sale of your business to maintain the lifestyle you want in the future? Is your business worth enough, now, on an after-tax basis, to satisfy your needs? Or do you need to grow it?
3. How will your exit plan impact value? Business value is relative, not fixed. It can vary, in part, based on the reason for transferring ownership or the conditions under which a transfer is made. The appropriate value for a third-party sale may be significantly higher than the value of transferring it to key employees over time or gifting it to children.
4. Create realistic benchmarks and incentives. Motivating and retaining key employees and management is essential for growing and realizing optimum value. The most successful incentive plans are linked to growth in business value. Employees and managers need to know that your benchmarks are accurate and fair.
5. Satisfy the IRS. In transfers to key employees, it’s common to initially transfer a minority interest at a discounted value. This technique is designed to reduce both the owner’s and buyer’s tax liabilities. The IRS will not accept a rule of thumb valuation to justify the discount. A certified valuation specialist is required to defend the valuation before the IRS.
LWBJ partners and staff bring significant competence and expertise to the valuation services we provide. Our investment banking experience with merger, acquisition and disposition transactions gives us deep insight into the market.
Beyond measuring value, we provide our clients with actionable strategies designed to increase their business value and better position them to achieve their business objectives.
Please contact us with any questions.