What is your business worth and why does it matter for small businesses especially?

We are mid-way through 2021 and, on the horizon, are planned income tax and capital gains tax increases set to take effect in 2022 and beyond which are sure to create issues for many business owners who are looking to retire and/or to sell their businesses. With interest rates still low and business returning to full activity after the Covid-19 pandemic, we are seeing many business owners looking to take advantage of current asset valuations and sell their businesses in front of these planned tax increases.

How should a business owner proceed, and if they are getting interest from brokers and potential buyers. How will you know if you are getting a fair offer?

In order to properly assess offers and their terms, and to negotiate optimal terms, a business owner should look at obtaining a business valuation from a properly credentialed valuation consultant who has experience in these matters.  Certified Public Accountants have the financial competencies, experience, and tools to evaluate the business and use professionally accepted measurements and methods in order to determine the optimal fair value for a business. CPAs must follow the AICPA’s Statement on Standards for Valuation Services Section 100 which covers asset and income-based valuation methods, discounting and capitalization rates and procedures, and appraisals which can be used all or in part to determine the value of your business.

Every business is different. Some are high margin professional or consulting companies with few assets.  Others are capital intensive businesses with most of their value tied up in their fixed assets. Others still may have very valuable intangibles, such as trademarks or franchise rights. Each business must be evaluated individually with accepted and tested professional methods in order to understand its value and receive a professional valuation report.

Aside for sales negotiations, a professional valuation report is helpful in obtaining new project financing or refinancing existing debt, use in negotiations for mergers and acquisitions, business or personal family litigation, or for owner financial planning matters, such as trust and estate planning.  Even something as simple as business liability insurance can be priced and scaled correctly only if you understand the true value of your business.

Although the changes in tax laws are on the horizon, a business valuation is not something that should only be pursued in sale negotiations. Knowing what every component of your business is worth is invaluable information for business owners to have.

Reach out to a qualified CPA firm with business valuation experience today and make your next move fully informed.  

By: A.J. Ferraro

Ferraro Tax & Accounting CPA, LLC, located in Alpharetta, GA, specializes in small business tax planning and compliance as well as business valuations and purchase and sale negotiations. A.J. Ferraro, CPA is the Founding Partner of the Firm and has over19 years of experience in tax, accounting and business contract negotiations.