Business Valuation

Business Valuation for Business Succession Planning

When planning for an owner’s exit from a business, the owners must establish a value for the business -- and, thereby, each owner’s share of that value.

This can be done in many ways, and generally includes looking at book values, historical earnings, assets (including real estate), debts, market value and future earnings potential. Business owners commonly have a business appraisal done by a certified public accountant.

Oftentimes, all owners will create an agreement to establish the value or a formula to determine the value of the business. Doing this ensures an agreeable price for an owner’s share of the business and reduces the risk of litigation concerning the business’ value.

Once a value has been established for the business, life insurance may be purchased on all owners in the business. In the event that an owner passes away before ending his or her relationship with the business, the death benefit proceeds from the life insurance may be used to buy out the deceased owner’s share of the business.

If you are considering transferring your business to another owner or selling your portion of your business, consult with the business lawyers at Murphy Desmond S.C.