Vrakas CPAs, Here Are Your Articles for Wednesday, December 20, 2017
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What Is Your Business Worth?

 

Why is it that most small business owners don't know when they need a business valuation? Most answer that they're not ready to sell. But that's only one reason to get a valuation. You may want to do this for any of the following reasons:

  • You want to strengthen your credibility. An independent, outside valuation builds confidence — from your employees to lenders to job candidates to future buyers, helping each evaluate your business.
  • You wish to track your goals. If you're planning to buy a new office building, launch a new product, add staff or expand internationally, you need a way to measure your progress and how your efforts impact the value of your business. A valuation gives you a starting point.
  • You are determining when you can retire. You may have an inflated sense of your business's value. If you're counting on income from the sale of your business to support you in retirement, the sooner you determine whether your estimate is realistic, the better.
  • You desire to expedite sales/acquisitions. With a firm idea of what your business is worth, you are more inclined to price it attractively for interested buyers. Or you may want to merge with or acquire another company. Having an up-to-date valuation can allow you to move faster to take advantage of these opportunities.
  • You need to do estate planning. The value of your business represents a sizable chunk of your net worth. How do you work on an estate plan without an accurate valuation? What about your children who are involved in your business? They need to have this info too.
  • You are looking to protect your family. If something happens to you, your family would have to deal with a potential sale or dissolution of the business. The information also may be important in divorce proceedings or if you want to buy out a partner to add one of your children.

And, of course, you'd want an expert who will look at the general economy, industry conditions, financial performance, management experience and debt-to-equity ratio. You say you don't have time, because the business takes up all your days. And that's exactly why you should invest in a professional valuation.

Don't accept the common misperception that says your company is worth four times EBITDA — earnings before interest, taxes, depreciation and amortization. That doesn't take in the full picture — your industry, business risks, cash flow expectation and debt, for example. We can help you look at all the factors and get you started on a valuation for your business so you're prepared for the future, no matter what happens.

 

 
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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