Authored by Nate Rockwell, CPA, MAcc, CVA. Nate specializes in certified business valuations, expert witness testimony, individual and business tax planning and compliance, and partnership taxation.

Business valuations are performed because ownership interests in privately held companies often represent a significant portion of a person’s estate or portfolio. The worth of an interest in a privately held company, as opposed to stock in a public company, is usually unknown because there is no active market to sell or trade that interest from which to ascertain or approximate a value. Value determinations are most commonly needed to calculate estate tax upon death, split up family assets in a divorce, or negotiate value in a purchase, sale, or merger of a business enterprise. There are also many other reasons why a holder of an interest in a privately held company might require a business valuation. Business Valuations are performed to determine company or stock value for the following:

• Actions in Eminent Domain
  
• Buy/Sell Agreements
  
• Charitable Contributions
  
• Damages for Disruption of a Business
  
• Dissenting Shareholder Actions
  
• Employee Stock Ownership Plans (ESOPs)
  
• Estate Tax Planning
  
• Family Limited Partnerships
  
• Gift Tax Planning
  
• Initial Public Offerings (IPOs)
  
• Life Insurance
  
• Marital Dissolution
  
• Partner Disputes and Split-Ups
  
• Purchase, Sale, Merger of a Business
  
• Spilt-ups/Spin-offs of a Division or Subsidiary
  
• Succession Planning
  

Possibly one of the best reasons for obtaining a business valuation is to use it as a management tool. A prime objective of every business enterprise is to improve and maximize its value to the owners. This is a necessary business requirement to justify the investment of time and capital. A properly prepared business valuation provides management with insightful information that helps identify company strengths and weaknesses that affect value, allowing management to more effectively focus its energies in the areas that really count. A business valuation also serves as a measurement tool that helps owners evaluate overall progress towards goals and management effectiveness.