What is your business worth today? (Advertising Supplement).Individual investors are used to keeping a close eye on the value of their portfolios. But, as a small-business owner, are you also keeping careful watch over the value of what is probably your biggest investment of all--your business? Although you may regularly monitor sales and profit figures, doing so without knowing how much your business is worth in today's market is comparable to looking only at your portfolio's earnings without knowing your portfolio's overall worth. Just as investment decisions should be geared toward maximizing the value of your portfolio, the same criteria should apply to decisions that affect your small business. Current valuations are important Most small business owners realize the importance of knowing their companies' worth during major transitional periods such as mergers and acquisitions, shareholder buyouts and initial public offerings. However, every major business decision you make has the potential to affect the value of your company. Have you ever thought about relocating to more modern facilities, upgrading your technology, expanding your product line or changing your management team? If so, knowing the current value of your business will help you to more accurately predict what the impact of such actions is likely to be. Are professional valuations necessary? When asked, small business owners regularly over- over- pref. 1. Above or upon in position: overpass; overcoat. 2. Superior in rank or importance: overlord. 3. or under-estimate the value of their companies by as much as 50%--which is understandable given the complexity of the valuation process. Although no single formula can realistically estimate the value of your business, there are some basic variables that can be applied in most situations. These include current market conditions and the company's stock value, earnings history, financial condition and future earnings capacity. However, even these basic components may not be as simple as they appear since they deal with numerous complicated factors (such as supply and distribution contracts, tangible and intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. , and pending legal and regulatory issues, among others). Professional valuation firms--some of which specialize spe·cial·ize v. 1. To limit one's profession to a particular specialty or subject area for study, research, or treatment. 2. To adapt to a particular function or environment. in serving small to medium-sized Me´di`um-sized` a. 1. Having a medium size; as, a medium-sized man s>. Adj. 1. medium-sized - intermediate in size medium-size, moderate-size, moderate-sized businesses--have the resources and experience to collect and interpret this essential information. Valuation options Different types of business valuations feature different levels of complexity. As a small business owner, the type that's best for you will probably depend on why you're having the valuation prepared. If you're preparing a valuation for tax and estate planning Estate Planning The overall planning of a person's wealth, including the preparation of a will and the planning of taxes after the individual's death. Notes: Contrary to popular belief, estate planning involves much more than preparing a will, and it is not only for the purposes, a "59-60" appraisal may be your best choice. Based on IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. Revenue Ruling 59-60 (the IRA Ira, in the Bible Ira (ī`rə), in the Bible. 1 Chief officer of David. 2, 3 Two of David's guard. IRA, abbreviation IRA. standard for estate and gift tax purposes), a 59-60 valuation compares a privately-held company to public companies in the same or a similar line of business and then applies a lack of marketability Marketability A negotiable security is said to have good marketability if there is an active secondary market in which it can easily be resold. marketability The ease with which an investment may be bought and sold in the secondary market. discount or a control premium. If, however, you're preparing a valuation for a specific proposal such as a sale, merger or acquisition, you'll probably need a more detailed appraisal tailored specifically to the proposal. In general, transactional appraisals will require more time and money than "59-60" valuations because of the additional factors (such as products, management and competitors) to be examined. Regardless of which type of valuation you need, it should be updated on a regular basis. If you review your business plan once a year, consider updating your business valuation at that time. Doing so will help you to evaluate the effectiveness of last year's business decisions and may even offer some insight into the year ahead. And remember, your business decisions--like the decisions that affect your portfolio--should always be geared toward maximizing the value of your investment. Please note that this article does not constitute tax or legal advice. Consult your tax or legal advisor before making any tax- or legally-related investment decisions. This article is published for general informational purposes only and is not an offer or solicitation solicitation In criminal law, the act of asking, inducing, or directing someone to commit a crime. The person soliciting another becomes an accomplice to the crime. The term also refers to the act of obtaining bribes, as well as to the crime of a prostitute who offers sexual to sell or buy any securities or commodities. Any particular investment should be analyzed an·a·lyze tr.v. an·a·lyzed, an·a·lyz·ing, an·a·lyz·es 1. To examine methodically by separating into parts and studying their interrelations. 2. Chemistry To make a chemical analysis of. 3. based on its terms and risks as they relate to your individual circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or and objectives. Ken Brozki and Stephen Meli are Financial Advisors with Morgan Morgan, American family of financiers and philanthropists. Junius Spencer Morgan, 1813–90, b. West Springfield, Mass., prospered at investment banking. Stanley's Glendale office. For more information, please call them at (818) 502-4022. |
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