Why Valuation is Important to Family Businesses

1. Why Valuation is Important to Family Businesses Business valuation may seem like something only large businesses require, but understanding what this critical step means to your family business will help you better recognize the value of business valuation services. Business valuation is an essential component to an overall business strategy particularly in terms of estate and/or business succession planning. Many times, a family business is a portfolio’s largest asset; at some point in your business succession or estate planning, you will need to identify the taxable value of the business because this will help you determine your next steps. An incorrect or under/over-estimated value could mean a failure of your estate or business succession planning as this could result in missed out tax savings and/or a waste of resources in unnecessary business moves. The same is true with commercial real estate appraisal, which also forms an important part of business valuation. Your family business may need ​business valuation services when determining capital gain, transferring business under a buy-sell agreement, transferring business through interest by gift, selling the business to a family member or an outsider, and determining active market-to-set price. Business value could be determined through various valuation approaches namely income approach, asset approach, and market approach. In income approach, the value of the business is mainly based on its expected income generation. When asset approach is used, value is determined according to business assets. Market approach on the other hand, determines value on the basis of similar businesses or on past sales of shares.

2. Business valuation services provide business owners with crucial facts and figures on the actual value or worth of the company. In addition to its use in business succession and estate planning, valuation can also be used to determine and display company growth as you get a better view of your company’s assets as well as its overall performance. Putting these concepts into visible figures—such as in a commercial real estate appraisal​-makes it easier to assess the value of a business along with its assets and to determine whether or not they are worth reinvesting in. Obtaining actual and true company value will also help you make critical business decisions and gauge your growth over the course of a particular period. This will help you make potential buyers see (in case of a sale) that your company sees regular and consistent growth, even as it ages. Business valuation services are also useful during acquisitions and mergers so as to determine the company’s real value and potential to grow. Do you need business valuation experts? Contact RD Clifford Associates at (201) 802-0010. We provide these services to clients in New Jersey, New York, and Pennsylvania.