Business valuation is the process of determining the overall value of a particular business or company. Determining the exact business value can often be complicated, even for small businesses and partnerships. However, an accurate approximation of a business’ total worth can be determined from:
- The business owner’s own accounting records
- Input from a professional, such as an expert analyst, lawyer, or appraiser
- Economic indicators, including assets owned by the company, cash flow, and earnings of the company
The business laws in each state may have different rules when it comes to determining business valuation. The exact calculations and valuation methods may also depend on many other factors, such as the type of business involved and the purpose for which the valuation is being made.
Business valuation becomes necessary in many different situations, especially where the overall worth of the business is in question. Some examples of instances where business valuation may be needed include:
- Buying or selling a business
- Transferring a business in a will
- Dividing up business assets in a divorce
- Filing for business bankruptcy
- For business tax purposes
Also, a business owner may wish to conduct a business valuation from time to time in connection with performance evaluations or similar reviews. A periodic business valuation can help determine whether it is profitable to continue the business operations, and to help identify possible areas of improvement for the company.
While business valuations may be necessary for the company, they can also be a source of legal disputes in many cases. For example, a business valuation may involve disputes with other parties, such as:
- Beneficiaries who may be receiving some or all of the business assets
- Insurance companies
- Creditors and other types of financial lenders
Business valuation methods can involve disputes over:
- The actual value of the business
- Tax matters
- Business shares, especially in the distribution process during business wind-up of a joint-venture
In order to protect the company and its members from economic losses, it is generally best to include some provisions regarding business valuations within the company bylaws or operating rules. Also, whenever a contract is made in connection with the business, the parties may wish to include a clause addressing business valuation matters. This can help to avoid disputes and provide written records in the event that a lawsuit arises.
Business valuation laws can be complex and will also vary from region to region. If you need assistance with business valuation issues, you may wish to hire a business lawyer for advice. Your attorney can help you determine how best to conduct a business valuation, so that you obtain accurate results. In the event of any legal disputes or lawsuits, your lawyer can help represent the company in order to protect the company’s assets and properties.