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39 Reasons for a Business Appraisal

April 9, 2013

There are many reasons for valuing a business, and here are some of them:

  1. To know what business is “worth”
  2. To have an idea how marketplace would value business should you want to sell
  3. To set up a process that would make the company more marketable should the owner decide to sell
  4. To be used to consider an offer to buy the business
  5. For buy-sell agreements
  6. Shareholder or partner disputes
  7. Freeze out minority owners
  8. Business or owner life insurance purposes
  9. To determine built-in gain for conversion of a C Corporation to an S Corporation
  10. For owners’ personal financial planning
  11. To use on owners’ personal financial statements
  12. To be used as a guide to determine retirement or buy out payments to the owner
  13. To show value for credit purposes
  14. To value assets and asset impairment for GAAP, i.e. financial statement, purposes
  15. To be used as a guide to determine reasonable compensation
  16. To plan for a merger with a competitor
  17. To allocate costs in acquisition or in a merger
  18. To assist the dream of going public and capitalizing the business’ value
  19. For gift tax purposes such as “token” ownership transfers to a child, donations to a charity, transfers to grantor remainder trust or installment sale to a defective trust
  20. For estate tax purposes
  21. For an estate’s division of assets where the business will go to one beneficiary and offsetting assets to another
  22. To assist a beneficiary in selling an inherited share of a business
  23. For succession planning
  24. To set up an employee stock ownership plan
  25. For stock compensation awarded to employees including restricted stock and stock option plans
  26. To determine a base line and on-going value for phantom stock arrangements
  27. To value assets in a marital dissolution
  28. To be used for prenuptial agreements
  29. Valuation of business and/or individual assets in a bankruptcy
  30. To distinguish between enterprise and personal goodwill
  31. To establish economic damages should there be a loss from a disaster and lost cash flow in litigation
  32. To use as a benchmark to measure business’ “growth”
  33. To be used in or to get started with strategic planning
  34. To see if an independent appraiser can uncover hidden value
  35. To determine if there is value greater than, or separate from, the present operations such as strategic value
  36. To show owner how to recognize, maximize, build or grow and realize full value of strategic value
  37. To raise mindset from daily operations to that of creating long-term and sustained value
  38. To understand the illusion of value and ways to make value reality
  39. To help identify whether the business is a growing or wasting asset

Valuations are serious undertakings and can be extremely revealing. When properly and thoroughly done, they can also add value.  If you own a business, consider valuing it.

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