Summary
Understanding your family business' true value and worth can be extremely beneficial regardless of how your particular business is faring.
Family Business Valuation Experts
Why a Business Valuation is Critical for a Family Business
Operating a family business can be extremely rewarding. For some, it represents an opportunity to build wealth. Others, it is a trial of leadership. For many, it is a chance to build a legacy for generations to follow. Regardless of your motivation in running your family business, you should consider evaluating its market worth with a family-oriented certified business valuation.
A business valuation conveys the current economic worth of a business. This is through accounting for its team, assets, earnings, growth, and losses. A Business Appraisal is conducted for various reasons, often occurring at the onset of a financing event within the business lifecycle. Appraisals provide business owners key insight into the company’s true value in terms of competition, asset values, and income levels.
As a family business owner, however, conducting a valuation is especially important. This is because your company’s future success often depends on its current and projected value.
Here are a few reasons to obtain a qualified business valuation for your family business.
1. Establishes an effective succession plan
As a family business owner, you should consider making a plan for future family succession. Children, grandchildren, or other relatives might take interest in taking over part, or all, of the business once you are ready to step away from the enterprise. Thus, determining an equitable business distribution among interested family members should be a top priority for family business owners.
To determine succession most effectively, you should decide who among your family is most interested in operating the business. Additionally, you should weigh company assets. This is an important part of determining succession and an expert like BAF | G conducting a valuation can help gauge this.
Additionally, when establishing a succession plan, you should consider obtaining insurance coverage and creating a buy-sell agreement. Even if a relative will be taking over your business, conducting these preventive measures will ensure that the business persists in the event of death or if a business partner decides to leave the enterprise.
2. Provides a better understanding of the value
Family businesses may often experience extreme periods of growth or loss. Undertaking an appraisal will help contextualize such periods of growth or loss. Doing so will include an analysis of projected earnings, budgets, and debt. This is a more effective manner than merely reviewing previous financial statements like many operating family businesses tend to do regularly.
3. Offers knowledge of how competitors are faring
Small, family-run enterprises may fail to consider the full landscape of their industry. Understanding such a landscape, however, is important to truly assess how well your company is faring. Qualified evaluations like those conducted by BA F|G will assess what similar companies are selling for within your industry or area.
4. Clarifies stock of assets classes
Family businesses that have been operating for decades have acquired various types of real estate, machinery, and capital. The value of such assets, collectively, often exceeds the superficial operating value of the business. This is why taking stock of the net asset value when appraising your family business is important.
5. Helps mitigate divorce proceedings
Many couples often start family businesses together. Therefore, it is standard for a family business to be at stake during a divorce. A court must first consider whether the enterprise is marital property to determine equitable ownership rights. To reach that conclusion, many factors may be considered. These may include the establishment date of the business and the contributions made by each party.
In addition to those factors, however, the value of the business is also considered. The court will especially be interested in determining what the business was valued at before the marriage and at the time of the divorce to then consider any changes in value.
Thus, it is especially important to obtain an appraisal at the onset of the enterprise, regardless of whether a divorce is at stake. Although the judge often has the final say on the value of the business, expert witnesses may be called to testify about the appraisal and how such a figure was determined.
6. Increases success with outside investors
Over the past few years, entrepreneurs have turned to nontraditional forms of financing for their ventures. Often, such financing has included acquiring funds from outside investors.
However, investors tend to seek a better understanding of a business’s value before committing funds toward its growth. Thus, if you are interested in seeking funding from private investors for your family business, you should consider obtaining an expert valuation like those conducted by BA F|G.
Family Business Valuation Conclusion
Family businesses face a variety of scenarios that impact their growth, finances, and success. Understanding its true value and worth can be extremely beneficial regardless of how your business is faring. Whatever the reason for obtaining a business valuation, BA F|G is eager to discuss your situation, our family business expertise, and our cost-effective business appraisal services.
As a business owner, do you need help with your business valuation steps? Please call or contact BA F|G.