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10 Benefits of a Professional Business Valuation

10 Benefits of a Professional Business Valuation
10 Benefits of a Professional Business Valuation

While some business owners think they know what their business is worth, others have no clue. Do you really know what a potential purchaser would be willing to pay for your business?

According to RBC Business Succession Planning, Your Essential Road Map:

"It is important to get a professional business valuation, since owners may grossly overestimate or underestimate the value of their business."

Value is in the eye of the beholder and value is different under different value definitions. Fair market value (FMV) is a great starting point as it takes the perspective of a potential purchaser and is a very common value definition applicable in many situations.

Getting your business professionally valued can help you think like a potential purchaser. Here are 10 other advantages to having a professional valuation done on your business:

Enhance Business Value - a business valuation provides a benchmark from which to measure value enhancement as well as helping to identify the key value drivers. Documenting the increase in value over time will increase the business attractiveness, which will help maximize the price a purchaser will be willing to pay for the business

Manage Family Wealth - privately held businesses often represent a significant percentage of a family's wealth. Business owners simply cannot manage and protect their family's wealth without knowing the value of their family assets (including the business). A professional valuation also prepares the family in the event that they receive an unsolicited offer

Pre-Sale Planning - buyers will only pay top dollar for the most attractive businesses. A valuation can help the business become more liquid and more easily monetized

Sale of Business to Third Party - used as a basis for negotiations with potential purchasers (e.g. determine asking price, assess unsolicited offer, etc.)

Internal Transfer of Business - establishes a price for a shareholder buy-out, management buy-out or employee share ownership plan

Tax and Estate Planning - provides support for the value being transferred and acts as insurance for potential disputes with CRA (e.g. estate freezes, reorganizations, related party transactions, etc.). Price adjustment clauses may be disregard by CRA if it determines that a reasonable attempt at value was not conducted at the time of the transfer

Life Insurance Coverage - a valuation provides business owners with third party evidence for ensuring that adequate life insurance is in place (e.g. key person or buy/sell agreements). This in turn provides the shareholders with peace of mind and comfort that their families and/or businesses are sufficiently protected

Shareholder Disputes - periodic business valuations allow the shareholders to discuss and agree on the current value of the business before any potential disagreements arise (i.e. full disclosure to all shareholders)

Matrimonial Separation - provides support for value of the business to be included in net family property (NFP) statement for the division of assets

Trustee / Executor Protection - protection against possible estate administration tax (EAT) reassessments

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