Are you aware of the how to determine the value of a business? Or are you like some entrepreneurs who do not know how to determine the value of a business and doing nothing about it? After hard work, it pays to assess where your venture stands in the present. It would help if you also had a professional appraiser in various scenarios, as explained hereunder.
Securing the Assets
You’ll protect your assets better when you understand their real market value. It is a way of protecting a business in operation in case of death, divorce, legal charges, and taxes. Develop a baseline value for your venture to know where it stands in the current market. How far have the prized assets come since the inception? How are you competing with similar companies? By quantifying your assets, you can gauge them from an economic point of view to motivate partners and employees toward future growth.
When Partners Need to Sell Shares
Buy-sell agreements disrupt businesses, especially the small ones. But when partners know the business value, the transition becomes smoother, leaving the venture in the safer hands of the owners. If the owner becomes disabled or reaches retirement age, a buy-sell agreement helps figure out how to fund the buyout to reach a consensus. That is why it is good to determine the value of an enterprise every year to revisit and update buy-sell agreements.
Exit Strategy
Suppose you want to sell your company. It helps to set a baseline value and develop a plan to increase profitability and consequently boost the value. If the exit strategy entails merging with another entity, a business appraisal helps to determine if the offer price is reasonable or not. If there are any shareholder disputes, an independent valuation is needed to agree on a fair settlement for an ownership interest.
Litigation Support
Objective business appraisals help with negotiations of pretrial settlements. Sometimes, legal cases go to trial and arbitration, and expert testimony by a certified business appraiser is needed. This strengthens a case in which the business value is the main concern.
Business valuations are intricate financial assessments that only qualified valuation experts can perform. The benefits of determining the value of a business range from minimizing the financial risks of a litigation process to finding defense during an audit. Moreover, you can reduce taxation in estate tax and gift situations. As such, obtaining an accurate valuation is a fundamental aspect of an ongoing business strategy.