Valuation FAQ's

Business Valuation Information

Q. Why should I have a business valuation report prepared?
A. There are many reasons to have your business appraised or valued. The potential sale of your business is only one reason. Additional reasons include, estate planning, various types of litigation, employee ownership programs, divorce, buy/sell agreements, and potential mergers to name a few.

Q. What is the value of my business?
A. The value of a business is calculated depending on the purpose and function of the engagement. Every situation is different and the standard of value must be determined before the calculation for value is prepared.

Q. Can I have my CPA appraise my business?
A. Is your CPA qualified to value your business? Does your CPA have the requisite training and experience necessary to value business entities? Most importantly, does your CPA hold an accreditation in business valuation? For a CPA to be qualified for business valuation work, the CPA should hold one or more of the following credentials: CVA, ABV, CBA, or ASA.

Q. I want to gift shares of stock in my company to my children. Do I need to have my business valued?
A. Ringler & Associates recommends a valuation whenever closely held business stock is gifted within a family unit. The IRS has become more aggressive auditing the area of gifts and the burden of proof to support the gift's value lies with the taxpayer. A well prepared and documented business valuation will help establish the value of the gift and indicate to the IRS the appraisal was properly performed.

Q. What is Revenue Ruling 59-60 and what does it have to do with business valuation?
A. Revenue Ruling 59-60 is considered the "bible" and the main standard in the area of business valuation. It identifies eight areas which must be addressed in a complete appraisal. The full text of Revenue Ruling 59-60 can be found by clicking here.

Q. Why you may need a new accountant in order to increase the value of your business.
A. Your accountant may have been focused upon minimization of your tax liability, which is a very good thing. Maximizing the value of a business requires the maximizing of earnings. When valuing a business, an appraiser looks to the last few years of book and tax records. Potential buyers will do the same and expect to pay based upon what they see, which may not be reality. There is often times a disconnect between what a seller & buyer perceive based upon tax records. An accountant focused upon maximizing owner value will treat certain transactions in a different manner, thereby increasing the value of the entity.

Q. "Joe" down the block recently (6 months ago) sold his similar business for 3X revenue. My business is worth at least this much, isn't it?
A. Possibly. Six months ago is not really relevant to today when considering business values. We need to consider (a) how much cash your business generates today, (b) what is the expected growth in cash for the foreseeable future and (c) the return the buyer requires on their investment. Are these characteristics the same as "Joe's"? What about interest rates? The value of your business toady is different, just like stocks in the stock market have different values.

Q. How Can I Receive Value Out Of My Company When I Retire?
A. Many business owners who contemplate retirement develop a strategy to "sell" their business upon retirement. This way, the value of the business that has been developed over time may be realized in cash. Our firm has assisted many of our clients in finding a buyer for their business. The resulting value may depend on the degree to which the client base can be transferred to another owner and the degree to which the seller helps in this process. Another retirement option may be the establishment of an ESOP. Employee Stock Ownership Plans (ESOP) can be a powerful tool when you want to create a succession plan for a family business. It is possible for an owner to maintain control while selling a large portion of his or her business to the ESOP

Q. Once I obtain a business valuation report, how long is it good for?
A. A valuation is valid as long as its methodology is sound and its assumptions hold firm. It could be a day, a week, a month, a year, or any time period, depending on the facts and circumstances of the situation. As a practical matter, this extends to a maximum of a year (in more certain times), when an appraisal must be updated to reflect subsequent company performance and current economic/industry conditions. The old adage, “timing is everything,” very much applies to business valuation. In the extreme case, given 9/11, in 2001, the valuation of a hotel or an airline company was significantly different on September 10th as compared to September 15th.