For many business owners, a business appraisal or valuation can provide vital planning information and help reduce risk. Here’s how a business appraisal can be helpful when dealing with these six items or situations.

Assets

Establishing a verifiable value for your business can show whether assets have appreciated at a reasonable rate.  If not, you may need to adjust your business strategy.

Financing

Business valuations provide documentation to support new financing.

Lenders need strong evidence that their loans are properly secured. A business appraisal can give that evidence. Also, an independent evaluation of business assets may encourage lenders to offer favorable interest rates.

Selling price

If you decide to sell the business, a valuation can help you establish a reasonable selling price.

Without a detailed and defensible appraisal, owners sometimes entertain low offers.

On the other hand, a valuation can keep owners from overpricing the firm and thus discouraging potential buyers.

Owner’s interests

What happens if one owner dies or otherwise leaves his or her share of the business to others? In some cases, litigation follows.

To protect the remaining owners’ interests, the business needs to be appraised beforehand.

Estate planning

A valuation can also support proper estate planning. If the estate is audited, the IRS is more likely to accept valuations that include a clear and reasoned appraisal.

If the appraisal adequately supports discounts, the IRS may reduce estate taxes.

Capital gains

Business appraisals are also useful when figuring capital gains.

Here’s an example. If you inherit a business from your father and choose to sell it, the business can be valued as of the date of your father’s death.

A good appraisal can help establish a supportable value for the business and may result in lower capital gains taxes.

Have questions about business appraisals? Let’s talk!