10 Benefits of a Professional Business Appraisal

While some business owners to think know what their business is worth, others have no idea. You Really Do you know how much a potential buyer would be willing to pay for your business?

According to RBC Business Succession Planning, Your Essential Road Map:

“It’s important to get a professional business valuation as owners can grossly overestimate or underestimate the value of their business.”

Value is in the eye of the beholder and value is different under different definitions of value. Fair Market Value (FMV) is a great starting point as it takes the perspective of a potential buyer and is a very common definition of value applicable in many situations.

Getting your business professionally valued can help you think like a potential buyer. Here are 10 other benefits of having a professional valuation done on your business:

1. Improve business value: A business valuation provides a benchmark against which to measure value improvement, as well as helping to identify key value drivers. Documenting the increase in value over time will increase the attractiveness of the business, which will help maximize the price a buyer will be willing to pay for the business.
2. Manage Family Wealth: Private businesses often make up a significant percentage of a family’s wealth. Business owners simply cannot manage and protect their family’s wealth without knowing the value of their family assets (including the business). A professional appraisal also prepares the family in case they receive an unsolicited offer
3. Pre-sale planning: Buyers will only pay the best price for the most attractive deals. A valuation can help the business become more liquid and easier to monetize
4. Sale of business to third parties – used as a basis for negotiations with potential buyers (eg determining sale price, evaluating unsolicited offer, etc.)
5. Internal Business Transfer – Sets a price for a shareholder buyout, management buyout, or employee stock ownership plan
6. Tax and Estate Planning – Provides support for the value being transferred and acts as insurance for potential CRA disputes (eg, estate freezes, reorganizations, related party transactions, etc.). The CRA may disregard price adjustment clauses if it determines that a reasonable attempt at value was not made at the time of transfer
7. Life Insurance Coverage – An appraisal provides business owners with third-party evidence to ensure adequate life insurance is in place (eg, key person or purchase/sale agreements). This in turn gives shareholders peace of mind and peace of mind that their families and/or businesses are sufficiently protected.
8. Shareholder Disputes – Periodic business valuations allow shareholders to discuss and agree on the current value of the business before potential disagreements arise (i.e. full disclosure to all shareholders)
9. Marital Separation – provides support for the value of the business to be included in the declaration of net family property (NFP) for the division of assets
10. Trustee / Executor Protection: protection against potential estate management tax (EAT) reassessments