Like most business owners, you probably have invested a considerable amount of time, effort, and energy in your business. A great portion of your net worth may be tied up in your business. Fixing an accurate value to your closely held business is essential, especially if you are considering any of the following:
BUY-SELL AGREEMENTS. Business owners often use buy-sell agreements to make certain the ownership of the business is not transferred outside a certain group. Buy-sell agreements also ensure an easy transfer of ownership of the business within that group.
EMPLOYEE COMPENSATION. Employee stock incentive programs are only as good as employees perceive them. If employees believe the value of the business stock has been measured fairly, then they will be more motivated.
EMPLOYEE STOCK OWNERSHIP PLANS (ESOPs). ESOPs invest in employer securities for the benefit of employees as part of a profit-sharing or stock-bonus plan. Annual valuations of the business are needed so the plan trustees can charge their fiduciary obligations properly and so the correct contributions needed to buy employer securities can be calculated.
MERGERS AND ACQUISITIONS. The tax cost of buying or selling assets has risen because of significant changes in the tax law. Accurately determining the value of each company involved in a merger or acquisition is more crucial than ever.
RETIREMENT. Careful succcessorship planning is crucial. Failure to do so has forced owners to work well beyond planned retirement to protect the value of their businesses.
Above all, proper valuation is necessary in the event of an unexpected death. Putting an accurate value on your business will protect your family from losing control of the business by providing your estate (through insurance or otherwise) with sufficient liquidity to pay estate taxes.
Every business, whether a small, family-owned business or a multimillion dollar corporation, is unique for valuation purposes. Since each business is different, valuation professionals and the IRS rarely focus on a single factor to reach a suitable value. Then may consider these factors, among others:
* The nature of the business and its history.
* The economic outlook of the business and the industry in
* The book value of the coupon and the financial condition
of the business.
* The earnings of the businesss and dividend-paying capacities.
* Prior sales of the stock and the size of the block to
* Stock prices of similar publicly held businesses.
While one factor may be controlling when valuing one business, that same factor may be less important when valuing another business.
To obtain an accurate assessment of the value of your business, we recommend you seek a competent valuation professional's help.