Why value your business?

One of the most common reasons for valuing a business is for sale purposes. Initially a valuation may be performed simply for information purposes, perhaps when planning an exit route from the business. When the time for sale arrives, owners need a starting point for negotiations with a prospective buyer and a valuation will be needed.

Valuations are also commonly required for specific share valuation reasons. For example, share valuations for tax purposes may be required:

• on gifts or sales of shares
• on the death of a shareholder
• on events in respect of trusts which give rise to a tax charge
• for capital gains tax purposes
• when certain transactions in companies take place, for example, purchase of own shares by the company.

Share valuations may also be required:

• under provisions in a company’s Articles of Association
• under shareholders’ or other agreements
• in disputes between shareholders
• for financial settlements in divorce
• in insolvency and/or bankruptcy matters.

When a business needs to raise equity capital a valuation will help establish a price for a new share issue. Valuing a business can also help motivate staff. Regular valuations provide measurement criteria for management in order to help them evaluate how the business is performing. This may also extend to share valuations for entry into an employee share option scheme for example, again used to motivate and incentivise staff.