Why a Business Valuation can be important to Estate Planning
Michael D. Casey, CA, CBV
With few exceptions, most business owners work long hours over many years to build their family business. More often than not, the family business is the only source of capital that a business owner will have to provide for his family and fund retirement obligations.
Business owners therefore owe it to themselves to ensure that when the time does come to sell the business, the right price is received, with the best terms possible, in the most tax effective manner available.
Let’s say you inherited a coin collection. You happened to speak to acquaintance who looked at it, and made you an offer of $750. Would you accept it? Likely not.
Why? Because you don’t know the “fair market value” of the collection. You require further information as to the collection’s value. Once you have had a qualified appraiser value the collection, you then have something against which you can compare the offer.
A business is no different, although more complex. In planning for your future, whether for sale, estate planning, or insurance purposes, a business valuation prepared by a qualified professional will assist you in making an informed decision.
Strongly consider using the services of a Chartered Business Valuator*, who has the requisite education and experience to professionally undertake the assignment. He/she will likely consider the following:
- Nature of the business and the industry in which it operates
- The outlook for the business
- Earnings/cash flows
- Assets employed
- Nature of the debt structure
- Management
- Redundant assets which may provide additional value that is hidden
- Management remuneration
- Future financial projections
The result will provide you with the assurance that you have the information you need to make a fully informed decision.
*The Chartered Business Valuator (“CBV”) designation has come to be recognized as the premier credential for professional business valuators in Canada with members providing a broad range of business valuation services to Canada’s business, legal, investment, banking and government communities. In order to become qualified, and receive the designation, one must undergo a program of studies, have the requisite practical experience and pass a uniform final entrance examination. For more information on the Institute and its members, please refer to the website at http://www.cicbv.ca.
