Authored By: Jared Ripplinger, CPA, MBA, CFP®. Jared is currently a manager over tax, business valuations, and estate planning work in the Logan office. He works primarily with individuals and small business owners in a variety of industries.
You’ve worked and grown your business, or are in the process of building and growing your business. You may have invested significant dollars and countless hours of your time, and what do you have to show for it? Many business owners have asked (or should ask) themselves, “what is my business worth?” The purpose of this article is to generate some thought about the value of your business, and some reasons why it may be important to know what the value of a business is.
There are several purposes for which a business valuation is needed, including the following:
• Mergers and Acquisitions
• Sales and Divestitures
• Buy/Sell Agreements
• Shareholder Transactions
• Employee Stock Ownership Plans (ESOPs)
• Expert Testimony/Litigation Support
• Solvency and Insolvency Opinions
• Gift Tax Planning and Compliance
• Estate Planning and Taxation
• GAAP Valuations under FAS 141/142 (now ASC 805/350)
• Charitable Contributions
• Banks – Loan Applications
• Divorce Proceedings
• Management Tool to Increase Value
The approach for valuing a business greatly depends on several factors, including the nature of the business, key employees, depth of management, stability of earnings and revenues, profit margins, and a variety of other factors. In short, there isn’t a “one-size fits all” approach to determining the value of a business.
Some businesses may only be worth what their equipment and other assets are currently valued at, whereas other businesses are worth several times what their annual earnings generated by the business operations happens to be. Properly determining the value of a non-public company is a very complex process, which requires a great deal of experience, training and education, along with significant analysis, calculations, and access to applicable databases.
Due to the complexity of valuing a business, it is important to enlist the services of a competent professional who is trained on how to perform a business valuation, who has access to the tools necessary to properly perform the valuation analysis and the ability to issue the valuation report. Our business valuation team at Cook Martin Poulson is well trained and well equipped to help you with your business valuation and business consulting needs. Please feel free to contact us at either of our office locations for a consultation regarding a business valuation engagement.