Thursday, February 16, 2012

10 Benefits of a Professional Business Valuation

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

Source: RBC Business Succession Planning: Your Essential Road Map

Most business owners intuitively understand the importance of knowing the value of one’s business. However, many business owners do not know the current value of their business, which can represent a significant portion of their overall wealth.  Obtaining an independent, professional business valuation is a critical step in wealth management and succession planning. However, there are many other reasons to have your business professionally valued, including:

  1. Exit or Succession Planning - provides a basis for planning and assessing exit options
  3. Wealth Management / Enhancement - identifies key value drivers and provides a benchmark for measuring value enhancement
  5. 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
  7. Sale of Business to Third Party - used as a basis for negotiations with potential purchasers (e.g. determine asking price, assess unsolicited offer, etc.)
  9. Internal Transfer of Business - establishes a price for a shareholder buy-out, management buy-out or employee share ownership plan
  11. 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.)
  13. Life Insurance Coverage - provides support for amount of life insurance coverage to obtain (e.g. key person, fund buy-sell agreement, fund taxes on death, etc.)
  15. Shareholder Disputes - can help avoid legal disputes over value (i.e. full disclosure to all shareholders)
  17. Matrimonial Separation - provides support for value of the business to be included in net family property (NFP) statement for the division of assets
  19. Trustee / Executor Protection - protection against possible estate administration tax (EAT) reassessments

Follow me over the coming weeks as I explore the above noted benefits in more detail. 

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