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Business Management Review | Tuesday, March 22, 2022
Business owners devote a significant amount of time and effort to increasing the value of their company by developing growth strategies with well-defined objectives. These plans maximize value over time, but achieving those objectives is difficult if you don't know where to start.
Fremont, CA: Owners must understand what their company is worth today and what supports and drives that value. Unfortunately, overconfidence or apathy on the owner's part causes this step to be ignored or downplayed or, at best, based on incomplete data or conjecture. In this case, a valuation usually serves as a wake-up call for owners who have a skewed or uninformed view of their company's worth.
What is the Purpose of a Business Valuation?
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The conventional response is that valuations are required to resolve tax or legal issues. However, valuations are done for various reasons, including, but not limited to, selling or acquiring a business. In a death, disability, disaster, or divorce, valuations are required to fairly determine the business assets by the terms outlined in legal filings.
Valuations are frequently required when gifting or donating company stock as part of a charitable contribution, resolving IRS or shareholder disputes, or converting a C-corporation to an S-corporation. In addition, a business valuation may be required as a buy/sell, partnership, or shareholder agreement.
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What are the Most Important Factors to Consider When Valuing a Business?
The purpose and objective of the valuation will be considered first by the business valuation professional. They will then investigate the nature and history of the company, its products and services, and the industry life cycle economic and political environment. Then, specific factors such as customer relationships, executive compensation, excess assets, working capital, and liabilities are considered.
Considerations That Could Have a Significant Impact on Value Include:
The asset, income, and market methods are three widely accepted fundamental methods for valuing closely held business interests.
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