Why a Business Appraisal May Be Your Best Friend
May 7, 2018
For many business owners, business appraisals can provide vital planning information and help mitigate risk. Consider what it may be able to do for you:
Establish a Verifiable Value for Your Business
This can show whether assets have appreciated at a reasonable rate. If not, you may need to adjust your firm’s strategy.
Create Documentation to Support New Financing
Lenders need strong evidence that their loans are properly secured. A business appraisal can supply that evidence. An independent evaluation of business assets may also encourage lenders to offer favorable interest rates.
Set a Reasonable Selling Price
Without a detailed and defensible appraisal, owners selling their businesses sometimes entertain unreasonably low offers. On the other hand, an appraisal can keep owners from overpricing the firm and thus discouraging potential buyers.
Avoid Litigation After a Death
What happens if one owner dies or otherwise leaves his or her share of the business to others? In some cases, litigation follows. To ensure that the remaining owners’ interests are protected, the business needs to be appraised beforehand.
Support Proper Estate Planning
If your estate is audited, the IRS is more likely to accept valuations that include a clear and reasoned appraisal. In fact, if discounts are adequately supported by an appraisal, estate taxes may be reduced.
Figure Out Capital Gains
For example, if you inherit a business from your father and decide to sell it, the business can be valued as of the date of your father’s death. A good appraisal can help establish a supportable value for the business and may result in lower capital gains taxes.