A professional business valuation, as provided by TAVAS, is appropriate for every business owner, although the purpose may differ. Valuation services are crucial in estate planning, succession planning, retirement planning, and shareholder planning. Further, they are used in transactions such as the sale of a business, reorganizations, mergers, or funding to support these transactions. Finally, they are appropriate to support litigation in such areas as divorce, IRS challenges, and shareholder/partner disputes.
Tax Planning
A business valuation for estate purposes is vital because the interest owned by a decedent is one of the most heavily litigated and intensely disputed issues in determining estate tax liability. One of the primary reasons business legacies end is the imposition of unplanned and unnecessary taxes that cannot be paid without selling or liquidating the business.
At some point, control of the business will be transferred, often to a family member. Succession planning is necessary to ensure the successful transfer of the owner’s interest and should not be written and applied without a business valuation to know the owner’s total business worth. Regular valuations of the business, implications with professional tax planning strategies. Allow transfers to occur with minimal tax consequences and exposure.
For lifetime succession planning, a valuation allows for the maximum amount of stock or ownership interest to be gifted tax-free to family members, partners, or employees, free of tax. A valuation establishes the price per share or interest for structuring the most tax-effective transactive possible.
Ownership Planning
Knowing the value of the busines today enables ownership to calculate the required business growth (or increase in value) necessary to adequately fund future retirement needs. With the business most likely the largest asset in an owner’s net worth, a valuation conducted by an independent expert is the sole pathway to finding the gap between meeting or missing the retirement needs or finding out when retirement may commence.
Transactional Planning
The average business owner spends approximately 10 hours per day, six days per week to get the business to a point where it can provide a measure of security and comfort for the owner’s family.
A professional business valuation, conducted by an objective expert, is the vehicle that identifies and quantifies a company’s intangible value to help a business owner maximize their exit plan. This ensures ownership that when approached by a buyer, they are not leaving money on the table. Unfortunately, with privately-held businesses, there is no newspaper to check the value of the business. Further, the burden is on the seller to prove the value of the business.
Litigation Support
Aside from the obvious emotional impact of litigation, the financial implications on a business can be overwhelming and more than anticipated. As mentioned, the business may be the largest asset in the estate, as well as the most illiquid.
In the case of divorce, funding a marital settlement can place a financial burden on the business absent sufficient personal liquidity. Supporting the settlement without interrupting business operations typically requires sufficient cash on hand, readily available liquid assets or other type of funding vehicles, such as a business loan. Opposing legal counsel (for the non-owner spouse) can easily dispute credibility and objectivity of a valuation performed by an appraiser with an existing relationship with the business owner or lacking the proper experience or expertise. Obtaining a valuation by a qualified, independent certified appraiser saves time and money.