Most business owners are reactive when it comes to having their businesses valued. But there are many times it pays to be proactive. Some valuations are necessities, such as for determining the value of the business interest in an estate. Others are obtained for more elective reasons, but are helpful to business owners nevertheless and help business owners with planning strategies. 

It is a good idea to review these common valuation scenarios, so you can identify when it is time to obtain your own valuation. Below are 10 reasons to have your business or a business interest valued.


  • Business succession transactions may be accomplished by gifting the ownership to family. Gifting is most common with family successions.
  • The business may be sold to employees, third parties, or may be combined with some amount of gifting. This type of transfer of ownership will be based on the value determined when the business is valued on an as-is, on-going basis.
  • Businesses may be sold to a strategic buyer (someone in the industry). A transaction with a strategic buyer usually occurs at a value higher than the amount determined with for a traditional transfer to family, employees or an individual buyer with no other connections to the industry. The buyer may incorporate the revenue streams into their existing business and will be able to achieve increased profit and cash flow by consolidating specific overhead expenses. 
    Example: Two facilities may not be needed and common business functions, such as administrative may be consolidated and the costs may be eliminated. A specific Valuation engagement may be performed to determine an estimated value of the business if it is sold to a strategic buyer.


  • You might need a business valuation not only to file an estate tax return, but also to provide guidance to the personal representative to fulfill the terms of the decedent’s will.
  • As long as the federal (and some state) estate tax remains in place, it is likely that effecting a gift to minimize ultimate estate tax will require the valuation of a business or a business interest.


  • A valuation is typically performed when a company acquires another company, is targeted for an acquisition, reorganizes its capital structure, splits up or files for bankruptcy while in liquidation or reorganization.
  • A merger generally requires both parties to get a valuation, while in an acquisition, it may only be one party.
  • These valuations may create challenges, which require the valuation analyst to calculate cash equivalents for payment (i.e. stock versus cash).


  • A valuation may be necessary in order for a business to develop a buy/sell agreement. These agreements can serve tax or business purposes. If a sale will involve related parties, a valuation might be necessary to insure a proper value for estate and gift tax purposes. 
  • A buy/sell agreement allows an owner in a closely-held business to acquire the interest of another owner in the event another owner decides to retire, exit, or passes away.
  • These agreements many times include a designated price or formula to determine the price the remaining owners would pay to acquire the interest of the exiting owner.
  • This price or formula should be occasionally reviewed by a valuation analyst in order to keep up to date with the performance of the company over time.


  • Ownership disputes result from many different circumstances, most commonly including: disagreements between owners, disagreement with a merger or dissolution, or other related issues.
  • Many states allow businesses to merge, dissolve, or restructure without a unanimous ownership consent.  This may result in a dispute that requires a valuation as part of the settlement process.


  • In the event of a business transaction (i.e. merger, acquisition, sale, etc.), the purchaser and the seller need to properly record the sale.
  • Inconsistent and inappropriate allocation of the purchase price may result in an increased tax liability, and even penalties.
  • A valuation analyst will consider the differences in business goodwill over personal goodwill and the various state laws applying to these transactions and calculations.


  • When a private business owner gets divorced, a valuation may be required to divide the marital estate, whether by agreement of the parties or by a judge through a trial. Often both sides obtain separate valuations, but there is also a movement toward collaborative divorces in which the parties agree to hire a single valuation analyst.


  • Closely-held business owners will sometimes pursue a valuation in order to determine a value necessary to cover their business interest value if something were to happen to them. This value is then purchased as “key person insurance.”
  • In the event something happens, the insurance could payout value to the owner’s family to allow them to continue the owner’s role, or buy themselves out of the owner’s role. These rules are subject to buy/sell agreements and terms within the key person insurance policy.


  • Financial institutions and the SBA may require a business valuation in order to underwrite and approve a loan especially when the loan is to acquire a business or a business interest.
  • Typically, financial statements are presented at historical cost.  A valuation will provide the bank with fair market value amounts that can support a loan.

10.  ESOP

  • An employee stock-ownership plan (ESOP) is an employee benefit plan that invests in employer common stock. ESOPs provide capital, liquidity, and certain tax advantages to those private businesses whose owners do not wish to go public.
  • A valuation must be performed annually for an ESOP. This valuation determines the price per share for the beneficiaries of the ESOP plan. It is a very important valuation, because the ESOP trustees may be held personally liable if a beneficiary receives less than the fair market value of the stock.
  • This is required in order to comply with IRS and Department of Labor rules.

This is but a partial list of potential reasons to have your business valued. In each of these instances, it is important to have your business valued by a credential valuation professional. Smith Schafer works with business owners, in multiple industries, to uncover the true value of their companies’ tangible and intangible assets. 

We look forward to speaking with you!

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