Business valuation is a detailed process that requires expertise, deep analysis, and a thorough understanding of the company and its industry.
FREMONT, CA: The business valuation translates a company's history, brand, products, and markets into dollars and cents. The process of valuing can have very different results depending on the objective when used by investors, owners, bankers, and creditors in addition to the IRS.
The present value of a company's future profits determines its value in the long run. The valuation process examines the company's operation, expenses, revenues, strategy, and risks to arrive at assumptions for future earnings, time horizons, discount rates, and growth rates. Some common reasons for conducting a business valuation include seeking financing, considering a sale, or updating a financial plan.
Merger, acquisition, and financing transactions: Business valuations are essential to negotiations for sales, purchases, or mergers. The valuation process helps partners and shareholders benchmark their buy-ins and buy-outs. It is common for lenders and creditors to require valuations to provide financing. It is also possible to establish and update employee stock ownership plans (ESOPs) using valuations.
Tax and succession planning: Valuations determine estate and gift tax liabilities and play an important role in retirement planning. The IRS provides guidelines for tax and succession valuations. The IRS requires that an independent third party determine the value of an asset. The most common method is to perform an appraisal or market valuation. The valuation determines the amount of tax owed. In the case of retirement planning, it is used to determine the number of assets available for distribution.
Litigation: Divorce proceedings, partnership disputes, and legal damages settlements often involve valuations. A valuation helps determine the fair market value of a business or asset. This allows the parties involved in the litigation to agree on the division of assets and liabilities in a dispute. All parties involved are treated fairly and equitably in this manner.
Strategic planning: Business valuations can help owners gain a deeper understanding of growth and profitability drivers. Strategic planning provides a detailed analysis of a business's financials, operations, markets, and competitors. This analysis can identify and quantify potential opportunities and identify and mitigate any potential risks associated with the business. This in-depth analysis helps owners better understand the key factors that drive growth and profit within their business.
