Before you can begin the Exit Planning Process successfully, you must know who you want to sell to. You must know the value of your business no matter who you plan to sell or transfer to.
The three primary exit paths are sales or transfers to:
1. A family member
2. An insider: One or more key employees or co-owner(s)
3. An outside third party
Transfer to family
A transfer of even part of the business to family requires a business valuation because the IRS wants to know what valuation method is being used and if a gift is being undervalued.
Sale to insider
If you plan to sell to someone within your company, a formal valuation is essential because it provides an unbiased true market value that can be relied on by all parties. Based on this valuation, a plan can be created to maximize value to the seller while using the best tax strategies, enabling the cash-flows of the business to pay for the business.
In a third-party sale you need an accurate business valuation to determine if after the business is sold and the taxes are paid you’ll have enough money to achieve your lifetime financial goals. If a valuation determines that the sale of your business doesn’t provide the money necessary to meet those goals, you may not want to even begin the expensive sales process. At that point, a certified valuation analyst can point out areas where you can add value to your business so that it becomes more valuable to a potential buyer.
You need a valuation based on reality, rather than an industry rule of thumb, or what the business down the street sold for. Without an objective business valuation, how can you make an informed decision? In short, no matter what your Exit Plan is a business valuation performed by a certified valuation analyst can be relied on by you, your advisers and the buyers. An accurate value will give all parties peace of mind.
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