Two Factors Driving More Business Appraisal Activity
Appraise my business inquiries are ringing the phones of qualified appraisers. This comes as an encouraging sign that owners and their advisers are cautiously optimistic about increased business values in the future. In a recent survey of 252 U.S. Business Valuation experts, 70% of respondents predicted their number of business appraisal engagements to “increase slightly or significantly” in 2012 (Pepperdine Private Capital Markets: Survey Report IV, Winter 2011. p. 20, Table. 12).
There are two main drivers behind owners and advisers requesting business valuations. These are:
- Owners taking advantage of gift and estate tax policies set to expire on December 31, 2012
- Baby Boomers Gauging Retirement Options
Fair Market Valuations for Gift and Estate Tax Advantages
The increase is due in part to owners and advisers taking advantage of current Gift and Estate Tax policies. One attorney described this opportunity as the “Perfect Storm” (Redd, Charles, A., “The Perfect Storm.” Trusts and Estates, August 2010).
The factors behind this opportunity are:
- Poor economic conditions reducing asset values
- High tax exclusions
- Low marginal rates
Time is running out, however. Thus, clients with estate tax concerns should have serious conversations with their CPAs and attorneys, now. The tax advantages are set to expire on December 31, 2012. Then, the IRS requires a qualified business appraisal with Gift Tax… IRS Form 709 filings. This means contacting a qualified provider of Fair Market Value business valuations and getting started preparing yours.
Fair Market Valuations for Baby Boomers Gauging Retirement Options
As the “work hard, play hard” baby boomer business owners cruise past retirement age, their view of a closely held business inevitably shifts from a “business income source” to a “stock investment asset.”
Moreover, an article published by Deloitte titled, “Is Your Business Worth What You Think It Is?” quotes a survey revealing that 89% of business owners believe the value locked in their business will be “somewhat or very” important to their plans (http://bit.ly/NtiSmn).
So, gazing at the horizon, and acknowledging the values of real estate and investment portfolios are uncertain, baby boomers are seeking certainty in knowing – what is the value of my business? The answer lies in a professionally prepared fair market valuation.
In summary, looming changes in tax policies have owners and advisers taking advantage of lower fair market valuations while they still can. Alternatively, baby boomers are gauging retirement options and viewing their closely held business more as a liquid asset, versus a stream of income. Both are driving calls to qualified business valuation specialists for answers. So, if you are thinking, “I will need to appraise my business,” feel free to reach out to us.
Comments: If you see similar or additional trends, please share your comments. For part 2, you can read it here.
Questions: If you have business valuation questions regarding your situation, please feel free to contact us for a confidential, free, and no obligations consultation.