You might wonder why you would ever need to value your business, but the circumstances arise more often than you might think.
Exit strategy/selling your business
If you are thinking of selling your business, it is important to have an idea of what your business is worth. Knowing the baseline value will place you in a stronger negotiating position when approached by potential buyers.
Prior to advertising your business, knowing your business’ current worth might impact your decision on timings of a sale. The knowledge could assist you with putting a plan in place to increase its worth; holding out for a longer period, may lead to a stronger valuation if you are say waiting for some key contracts to complete.
Acquisitions/IPOs
Valuations are particularly useful when it comes to making business acquisitions or when you are listing as a public company.
Obtaining a third-party valuation for potential target companies will help ensure you are not overpaying, particularly when it comes to acquiring a private company’s equity which does not trade publicly and may therefore prove more difficult to value.
Assistance with pricing of shares where the business is preparing for an IPO is important for both the company and the investors, as it helps to fairly determine the value, avoiding an overvalued IPO which fails to attract investors.
Disposals of interests to other shareholder and shareholder disputes
A shareholder dispute can mean that one party needs to buy out the other. An independent valuation of shares is required in order that agreement can be sought regarding the value of the company owned by each party. A third-party value of shares is particularly useful when the situation between shareholders has become contentious. In fact, incorporated companies may have Articles that include provisions for the appointment of independent valuers in such situations.
Divorce disputes
Divorcing couples often find that reaching a financial settlement is the most challenging part of the divorce process.
In particular, if you own your own business a divorce can lead to the ownership of the business being transferred to your spouse and potentially the involvement of an ex-spouse in the business post-divorce; something which is unlikely to be in anyone’s interest.
It is useful to obtain an expert valuation from an independent third party, whether you and your spouse are in court proceedings about your matrimonial finances or discussing matters between yourselves (with or without a mediator or lawyer); either of the parties may inflate or deflate the value of a business asset, knowingly or otherwise and it is vital you seek the best advice.
Tax planning
Tax planning has become increasingly common across business owners, it is vital that if anything happened to you a plan is in place to protect not only the future of your business but to assist in getting your estate in order.
A valuation may also be required when transferring shares via gifts for example.
Accounting
Certain transactions such as business acquisitions and share option issues might require a valuation for the purposes of inclusion of those transactions in your annual financial statements. Acquisitions can trigger the need for a Purchase Price Allocation to establish the fair value of the assets acquired, including an assessment of any goodwill or intangibles.
Employee benefits in the form of shares and options might require not only a valuation but complex disclosures of the assumptions used in determining the value.
If you would like to discuss any of our valuation services in further detail, please contact Carolyn Hazard to discuss.
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