Business Valuation is a process and set of procedures used to estimate the economic value of an owner's interest in a business.
There are many reasons why business owners benefit from knowing the value of their business. Some benefits are obvious- for example, to assess an offer or assist in negotiations when buying or selling a company. However, a business valuation is a useful tool to owners who plan to maintain ownership over the long term as well. A valuation allows owners to have a benchmark on which to compare value year over year, set performance goals based on value drivers, identify strengths and weaknesses, and ultimately enhance value. The following is a list of additional ways in which a business owner can benefit from knowing the value of their company:
- Enhancement of the value of the business for exit planning
- Establish the per share value of an Employee Stock Ownership Plan (ESOP)
- Identify any tax benefits of converting from a C-Corporation to an S-Corporation
- Shareholder (ownership) disputes, investment, or buyouts
- Calculate funding of buy-sell agreement obligations
- Raise additional capital investments or financing
- Estate tax reporting
- Gift tax planning purposes
- Marital dissolution
- Value synthetic equity (stock appreciation rights, warrants, phantom stock plans, etc.)
- Establish economic damages or expose fraud