July 2013

 What is My Business Actually Worth?

By: Jared Ripplinger, CPA, MBA, CFP®

You’ve built up your business, or are in the process of building up your business.  You have invested countless hours of your time, and what do you have to show for it?  Many business owners have asked (or should ask) themselves, “what is my business actually worth?”  The purpose of this article is to generate some thought about a business’ value, and some reasons why it may be important to know what the value of a business is.

First of all, there are several purposes for which a business valuation is needed, including the following:

Mergers and Acquisitions

Sales and Divestitures

Buy/Sell Agreements

Shareholder Transactions

Employee Stock Ownership Plans (ESOPs)

Expert Testimony/Litigation Support

Solvency and Insolvency Opinions

Gift Tax Planning and Compliance

Estate Planning and Taxation

GAAP Valuations under FAS 141/142 (now ASC 805/350)

Charitable Contributions

Banks – Loan Applications

Divorce Proceedings

Management Tool to Increase Value

The approach for valuing a business greatly depends on several factors, including the nature of the business, key employees, depth of management, stability of earnings and revenues, profit margins, and a variety of other factors.  In short, there isn’t a “one-size fits all” approach to determining the value of a business.

Some businesses may only be worth what their equipment and other assets are currently valued at, whereas other businesses are be worth several times more than what their annual earnings generated by the business operations happens to be.  Properly determining the value of a non-public company is a very complex process, which requires a great deal of training and education, along with significant analysis, calculations, and access to applicable databases.  

Due to the complexity in valuing a business, it is important to enlist the services of a competent professional who is trained on how to perform a business valuation, and who has access to the tools necessary to properly perform the valuation analysis and to issue the valuation report.

Jared Ripplinger, CPA, MBA, CFP®. is a manager over tax, business valuations, and estate planning work for Cook Martin Poulson, P.C.  He works primarily with individuals and small business owners in a variety of industries.