Why Is Knowing The Value of Your Business So Important?

Determining the value of your business is the first step to succession planning. Usually, your business is the largest asset you own, and a value is needed when drafting a buy-sell agreement, estimating your future retirement income needs, or creating an estate plan.  

Knowing the value can help ensure that in the event of an unforeseen death you receive a fair price for the business that you spent a lifetime building. Additionally, it can help to avoid conflict with other owners, family members, and the IRS. 
 

Where do you begin?  

Formal business valuations can be expensive, costing as much as $1,000 to $10,000 or more depending on the complexity of the business. Also, there are different methods that can be used to value a business, such as: 

• Book value
• Adjusted book value
• Earnings Before Interest Taxes Depreciation & Amortization (EBIDTA)
• Multiplier of sales 
• Straight capitalized earnings

The method that makes the most sense for your company will depend on your specific type of business. It might be based on assets and liabilities, or on the profits that the business produces.

Reach out to your local Federated^® marketing representative for more information about our Value Estimator^TM service, which can provide you with a value that may be used as a starting point with your attorney and other advisors for business succession or estate planning discussions.

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This article is for general information and risk prevention only and should not be considered another other offer of insurance or legal, financial, tax, or other expert advice. The recommendations herein may help reduce, but are not guaranteed to eliminate, any or all losses. The information herein may be subject to, and is not a substitute for, any laws or regulations that may apply. This information is current as of its publication date and is subject to change. Some of the services referenced herein are provided by third parties wholly independent of Federated. Federated provides access to these services with the understanding that neither Federated nor its employees provide legal or other expert advice. All products and services not available in all states. Qualified counsel should be sought with questions specific to your circumstances. All rights reserved.