While business owners are typically happy with their business, there are certain cases where it is wise to hire a professional company to provide you with an appraisal of your business. They can ease the process of selling or liquidating a struggling company, ensure that the valuation on IRS tax returns is accurate, and even help justify any deals made between company partners. Here are five reasons to hire a business valuation expert.
1. Help with a buyout
Often, a company will sell a portion of the business- or simply transfer it to another owner- to raise capital. In these cases, it is important for the purchaser to know what their final payment will be based on the company’s current value. Without this information, they may be paying too much or too little for a given share of the company. A professional valuation from an experienced company ensures that each partner pays accordingly and avoids disputes down the road.
2. IRS validation
In some cases, businesses have been known to overvalue themselves on tax returns to take advantage of excess depreciation allowances and other deductions which inflate income during a given year. However, once this deduction has been used up, the company will pay substantially more in taxes.
A professional valuation can help avoid this by justifying deductions on tax returns and avoiding the trap of overvaluing assets before they are sold. It may also be important when filing for bankruptcy or dealing with other financial difficulties resulting from the sale of equipment, etc.
3. Valuable insight into purchase price negotiations
When buying a business, knowing what it is worth is very important in negotiating fair terms with an owner who wants to sell the company’s share. A valuation provides information about the business’s value and insight into how much bargaining power they have in any negotiations if they want to keep it open after off some shares.
4. Ease the process of selling
One of the most common reasons that a company decides to sell is because they are struggling financially. A professional valuation can ease this transition by providing current information about the company’s value and budgeting projections for any new business owner. This allows them to make more educated decisions about their purchase, including whether or not they think it will be profitable in the future without an infusion of capital.
5. Even out ownership disputes
If business partners have disagreements over profit sharing, bonuses, etc., a valuation report on the business may help convince one party that they need to provide financial assistance or offer another concession to even things out between owners. It is also helpful one partner wants to leave while another does not, as it will show the projected value of the company over time and what each partner may be entitled to based on their percentage ownership.
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