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25 Reasons You May be Required to get a Business Valuation

There are many reasons that a business owner or individual may need to know the value of a business.  Below are 25 common reasons that a business owner or individual may need a business valuation:

  • To set a basis of value for a business when no valuation has been previously performed.
  • To understand the value (worth) of the business.
  • To set a base line value for the business and develop a strategy to improve the profitability of the business and increase the value of the business for an exit strategy.
  • To evaluate an offer and negotiate a strategic sale of a business.
  • To determine the annual per share value of an Employee Stock Ownership Plan (ESOP).
  • For exit strategy planning purposes.
  • To value a portfolio of IP – patents, trademarks, copyrights, proprietary processes, etc.
  • To justify the per share equity value in a company for annual shareholder meetings.
  • To identify weaknesses in a business to refocus the operational efforts to improve profitability and the bottom line.
  • For shareholder or partnership disputes.
  • For shareholder or partnership investments or buyouts.
  • To determine the potential built-in-capital-gains tax in a conversion from a C-Corporation to an S-Corporation.
  • For buy-sell purposes and funding the agreement.
  • To obtain bank financing or alternative investment.
  • For financial reporting purposes – to allocate the purchase price to appropriate equity classes and determine if there is any goodwill impairment.
  • To allocate the purchase price after an acquisition of a business.
  • For estate tax reporting purposes of a decedent.
  • For gift tax planning purposes – transferring an interest to family members, donation to a charity, transfer to an intentionally defective grantor’s trust, etc.
  • To determine the value of the assets in a marital dissolution action.
  • To value stock options, restricted stock or phantom stock plans that a Company has in place to comply with IRC 409A.
  • To value a business for a business bankruptcy.
  • To determine the IP value in a business.
  • For litigation support purposes, to determine economic damages, lost profits, uncover fraud or value of a business in a shareholder or partnership dispute, IP damage from infringement or section 2000 minority shareholder action.
  • To determine the intrinsic value of a business and assess whether it is different from the fair market value of the business.
  • To identify whether the business is growing, stagnant or declining in value to restructure the business.

This list is not exhaustive.  There are many other reasons that a business valuation may be needed.

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