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A business’ fair market value is the cash price a buyer
would pay to a willing seller, provided that neither is under
any compulsion to buy or sell and each has equal knowledge
of the relevant facts.
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Business owners decide to sell for a many different
reasons. For some, it is primarily an instinctive
conclusion inspired from a need to resolve problems
or a desire capture opportunities. For others,
it may be a judgment motivated by pursuit of long
range business- or estate-planning goals.
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Many situations — e.g. applications for financing,
purchases of insurance, ESOP’s, succession planning,
shareholder discussions and buy/sell agreements, mergers and
acquisitions, litigation, and effective estate and tax planning
— require that you be aware of the most current value
of your business.
No matter how intimate your knowledge of your business, it
can be difficult to account for all the factors and weights
influencing its value. You should have a current professional
valuation of your company and consider having one performed
at least every three to five years and IRS regulations require
that ESOPs be valued yearly.
Determining the fair market value of a business requires
expert knowledge of valuation methodologies and of the many
issues that may have to be taken into account. The factors
professional appraisers typically consider include:
Historical and
current financial data, including projections of future
earning power.
The value of existing
assets and an estimate of the capital expenditures necessary
to continue the
present earning pace.
The source and
diversity of the company income and earnings.
The strength of
the business and its management, relative to its competition,
now and for the future.
Current facilities
and legal issues.
The purpose of
the valuation.
The amount of
interest in the company that a transaction involves, particularly
whether it is more or
less than fifty percent.
Please note that business valuation
is a complicated and complex discipline requiring extensive
experience. It is prudent, particularly when significant amounts
of money are involved, to hire a professional business appraiser
to perform the valuation. Mr. Efrain Conrique is a Certified
Business Opportunity Appraiser with more than 12 years experience
in performing business valuations.
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