Why Valuing a Business?
There are many reasons for obtaining business appraisals or valuations as evidenced by the list below. The proper perspective for interpreting business evaluations is to consider the report as an investment that offers returns. Whether you are trying to purchase or sell a small business, settle an IRS dispute or obtain an SBA loan, the valuation results can generate value for the recipient. Valuation results in and of themselves have no value at all until they are utilized in some type of transaction or situation, i.e. "in the heat of the battle".
Credible appraisal or valuation reports can help a buyer or seller obtain the most favorable price. An independent appraisal or valuation can and often does benefit the recipient in terms of negotiating a final price for a business. When attempting to settle an estate tax dispute with the IRS or resolve a divorce proceeding, a credible analysis supporting your cause will undoubtedly be worth the cost of the "investment". For example, a valuation report costing $2,000 that saves $50,000 in estate taxes represents an incredible return. Obviously, every situation is different, but the same principle applies to each scenario.
Examples of reasons for valuing a business :
Negotiate favorable price and terms as a buyer or seller in a transaction.
Settle a tax dispute with the IRS regarding estate taxation
Resolve the asset distribution in a marital estate resulting from divorce
Obtain an SBA loan or commitment from a venture capitalist or angel investor
Purchase adequate amount of insurance for various purposes
Create an Employee Stock Ownership Plan (ESOP)
Settle a "Buy-Sell" provision in a partnership arrangement
Aid in establishing proper exit strategy
Satisfy the general curiosity of the typical entrepreneur!
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