October 18, 2023
If someone was to suggest that you should have your business appraised, you might wonder whether the person was subtly suggesting that you retire and sell the company. Seriously though, a valuation can serve many purposes other than preparing your business for sale so you can head to the beach.
Think of it as a checkup that can help you better plan for the future. Strategic planning Today’s economy presents both challenges and opportunities for companies across the country. Chief among the challenges is obtaining financing when necessary — interest rates have risen, inflation is still a concern and many commercial lenders are imposing tough standards on borrowers. A business valuation conducted by an outside expert can help you present timely, in-depth financial data to lenders.
The appraisal will not only help them better understand the current state of your business, but also demonstrate how you expect your company to grow. For example, the discounted cash flow section of a valuation report can show how expected future cash flows are projected to increase in value.
In addition, a valuator can examine and state an opinion on company-specific factors such as: Your leadership team’s awareness of market conditions, What specific risks you face, and Your contingency planning efforts to mitigate these risks. As you go through the valuation process, you may even recognize some of your business’s weaknesses and, in turn, be able to address those shortcomings in strategic planning. Acquisitions, sales and gifts There’s no getting around the fact that, in many cases, the primary reason for getting a valuation is to prepare for a transfer of business interests of some variety — be it an acquisition, sale or gift.
Even if you’re not ready to make a move like this right now, an appraiser can help you get a better sense of when the optimal time might be. If you’re able to buy out a competitor or a strategically favorable business, a valuation should play a critical role in your due diligence.
When negotiating the final sale price, an appraiser can scrutinize the seller’s asking price, including the reasonableness of cash flow and risk assumptions. If you’re thinking about selling, most appraisers subscribe to transaction databases that report the recent sale prices of similar private businesses. A valuator also can estimate how much you’d net from a deal after taxes, as well as brainstorm creative deal structures that minimize taxes, provide you with income to fund retirement and meet other objectives.
In the eyes of a potential buyer, a formal appraisal adds credibility to your asking price as well. And if you want to gift business interests to the next generation in your family, a written appraisal is a must-have to withstand IRS scrutiny.
Going the extra mile You probably have plenty of other things on your plate as you work hard to keep your business competitive. But obtaining an appraisal is a savvy way to go the extra mile to get all the information you need to wisely plan for the future.
We can support your company throughout the valuation process and help you make the most of the information you receive. © 2023
BG Advisors CPA, LTD. is a full-service CPA firm committed to helping growing businesses reach their goals. Combining decades of diverse corporate finance and tax experience allows us to bring world-class expertise to every client we serve.