Every business owner wants to be successful, and some make the mistake of assuming that the bottom line in their accounting software is all the proof they need to determine just how well the company is doing and how much it’s worth. But this isn’t accurate. Financial software isn’t the key to determining the value of your business—appraisal is.
Increasing the value of your business is important, and an appraisal will let you know if you’ve done that since the company’s inception. Some business owners only get an appraisal of their business when they’re looking to sell, but that isn’t the only time to you should have the business appraised. There are plenty of other reasons to get a business appraisal done, and the following are some of the top reasons to do just that.
Sometimes the responsibilities of owning a business become too much to handle, and when this occurs, many business owners opt to split the ownership with another party. Sometimes this new owner could be a sole individual, or it could be a group of investors. It doesn’t matter who you’re splitting the company with, but if you’re ever going own this route, you’ll need to have the company appraised so you know how much the new owner has to pay to receive ownership. For example, if you want to split the company 50/50, you may want the other owner to pay for half of the business, and this would require you to know how much it’s worth so you don’t end up making a bad business decision.
If you find yourself going through a divorce, you may need to have a business appraisal in order to determine your worth. This information could be used in your divorce proceedings for various reasons. If you have children, your company’s appraisal could determine the amount of child support you may owe, or how much may be owed to you. It could also be required in order to determine just how much of your property becomes your ex spouses after the divorce. For example, your spouse may be entitled to half of your worth. The amount your company appraises at will be a part of your total worth, so your spouse could end up walking away with a nice chunk of money thanks to your successful business.
Planning your estate could be determined by the worth of your business. Having an appraisal will let you know if estate planning is something you need to do. In 2014, the estate tax exemption is $5.34 million, so if your total worth is valued at more than that, you will need to plan your estate and pay the right amount of taxes. If you believe that your worth could be valued above the current threshold, have your company appraised just to be sure.
Some companies decide to share ownership with their employees through stock. If you want to pursue this option, you’ll need to have your company appraised. Employee Stock Ownership Plans (ESOPs) are extremely common, and they are essential so that you know how much money participating employees can receive on an annual basis.
There may come a time when your company is sued. If your company loses, your insurance will likely cover the costs associated with the proceedings. However, if your insurance does not cover the entire cost, a business appraisal will let you determine whether you can use the company’s assets to pay for the remainder of the proceeding, or if you need to close the business and/or file for bankruptcy.
Sometimes, you simply just want to know what your company is worth without any underlying cause. There is no rule that says you need to have a reason to appraise your business, so if you’re simply just curious, have the business appraised. No harm can come of it.