The most commonly cited benefits of an annual business valuation policy include the following:
Provides Accountability and Performance—An annual business valuation of a closely held firm enables the shareholders to see the value that is being consistently created or destroyed by the management of the firm in its execution of the corporate strategic plan.
Fulfills Reporting or Compliance Needs—As with a 401k rollover, the value of the shares in the privately-held company must be established for annual reporting purposes. An annual business valuation provides the data necessary for the reporting required by ERISA and the Internal Revenue Code.
Avoids Conflict with Buy-Sell Situations—In multi-shareholder firms, a buy-sell agreement is an effective and practical means of establishing how the buyout of other shareholders will be conducted. For those firms that do not have buy-sell agreements in place, annual business valuations are a good way of avoiding (or at least, tempering) disputes that may arise when a shareholder seeks to sell his shares to the other shareholders.
Promotes Effective Communication—An annual business valuation is an effective means of communicating value creation between the executive management and the shareholders of the firm. The business valuation may be the catalyst for open discussion on issues related to the strategic plan and succession plan.
Facilitates Banking—Many closely held firms effectively utilize leverage to invest in value-creating projects. The ability of a closely held firm to borrow based on the value of the goodwill or the value of the company’s shares may expand the universe of value-creating investment options available to the firm.
Expands the Investment Options—Closely held firms suffer from a lack of liquidity and the inability to use the company’s shares as currency when seeking acquisitions. An annual business valuation that clearly establishes a trend in value creation may enable the management of the company to use the shares as acquisition currency for another closely held company.
To talk with us about setting up an Annual Valuation Program for your business, contact us at (888)-750-5259 or by e-mail at info@NationwideValuations.com
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