Everyone knows a business valuation is important for effective tax planning, but you won't only be glad you've had your company valued when you meet with your tax accountant. Here are just four more situations in which you'll be glad you know what your business is worth.
1. Splitting a Partnership
During the early days of a business, it can seem like all the partners will stay together forever, but that becomes less and less likely as time goes on. If one of your partners decides they wish to leave the company, you'll need to provide a fair dollar number for buying them out. During a business valuation, the monetary worth of each stakeholder's share will be set out, not just the overall value of the business. If someone does decide to part ways, you'll have all that information ready to go. You can also plan around any potential splits by making sure the business won't be too badly affected.
2. Planning Your Retirement
If you're starting to look forward to the open and easy days of your retirement, you'll want a full valuation to best understand your options. This isn't something you can do right before you retire – ideally, you should know the value a year or two before that happens. If you own the business, you'll need to be able to talk with other equity owners so they can decide how they're going to pay you out. You may also need to negotiate, in which case understanding the business's value will be crucial.
3. Passing of a Partner
If the worse should happen, you'll want to at least know how the business is going to handle things. Deaths are often unexpected, but you can prepare by getting valued regularly. You'll then have that information ready to go when needed instead of having to scramble for a valuation. Valuations can also ensure your family is protected if anything unexpected happens to you; if the value recently increased, you may need to increase your key life insurance policies.
4. Getting an Offer
Even if you're not thinking about selling, someone may come along and make an attractive offer. If that happens, you should be prepared to meet them in frank negotiation, and you can't really do that if you don't understand how much your company is worth. Having figures at your fingertips provides a head start in negotiations. The offer may seem high but not truly reflect the company's true value.