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Have You Ever Wondered Why Business Valuation Is So Important?

Have You Ever Wondered Why Business Valuation Is So Important?

Why is business valuation so important? Grobstein Teeple’s experienced business valuation experts, Kurt Stake and Will Thomsen, have the answers.

When it comes to the sort of services Grobstein Teeple provides, business valuation isn’t always the first thing that comes to mind for many clients.

It’s often only when parties come to a dispute regarding the value of a business that the true importance of accurate business valuation becomes clear.

Picture any of the following scenarios:

  • A partner is forced out of a business by the firm’s other partners 
  • A co-owner decides, of their own volition, to leave a closely-held business
  • The value of the equity of a family-owned business must be determined for purposes of a marital dissolution 
  • A municipality acquires a business by eminent domain
  • A business owner intends to gift a portion of their company to their heirs and wishes to minimize estate taxes
  • A merger or acquisition of a business is contemplated
  • The apparent value of a business allegedly decreases as a result of alleged bad acts of another party
  • A business is an asset within a bankruptcy estate that must be valued.

These are all examples of business valuation matters that often give rise to disputes. Such disputes are typically a disagreement between parties as to the specific value of the business.

Despite the legitimate, or possibly feigned, sincerity of the parties to resolve the dispute amicably, both parties are invariably focused on their own self-interest.

In the instance of a partnership dispute, the departing partner seeks to be paid the greatest amount of money possible for their interest in the business. Meanwhile, the remaining partners attempt to buy out the departing partner for as little money as possible.

Establishing a value for the business that can be agreed upon by both parties is paramount. 

Unfortunately, this is easier said than done. Sometimes, it’s not always possible.

Fair Market Value is defined as:

“The amount at which property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of the relevant facts.”

Ideally, the Fair Market Value of an entity is determined by negotiations between a buyer and a seller culminating in the sale of that business.

If the subject business was recently sold in a scenario consistent with the definition above, the sales price established from that transaction could be a reasonable gauge of the Fair Market Value of the subject business.

However, in most instances, a conclusion of value must be determined by analysis of a number of factors including, but not limited to, business records, industry data, and economic trends.

More often than not, the available information relating to the business is limited.

Therefore, this exercise is best completed by seasoned and trained experts in the field of business valuation.

Kurt Stake and Will Thomsen head the business valuation practice at Grobstein Teeple. With more than 40 years of combined experience in the field, they have the expertise to provide clear and defensible conclusions of value.

Their valuation analyses and reports have been used to settle valuation disputes in non-litigated matters, mediations, arbitrations, and State and Federal bench and jury trials.

Don’t leave your business valuation to chance.

Get in touch to find out how Grobstein Teeple can help with your business valuation today.

Grobstein Teeple, LLP Valuation Practice

Kurt Stake

Kurt holds a Bachelors of Science degree in accounting from the University of Southern California and an MBA from the Argyros School of Business and Economics at Chapman University. He is a Certified Public Accountant, a Certified Valuation Analyst, a Certified Fraud Examiner, a Certified Management Accountant and is Accredited in Business Valuation and Certified in Fraud in Forensics by the American Institute of Certified Public Accountants. Kurt established the forensic accounting program at Chapman University for both the undergraduate and graduate accounting programs.

Will Thomsen

Will holds a Bachelors of Arts in Economics from Pomona College and an MBA in Finance from Columbia University. He is a Certified Financial Analyst and an Accredited Senior Appraiser by the American Society of Appraisers. Will is a long-time speaker on the legal and business circuit and contributes to a range of publications including the upcoming third edition of The Lawyer’s Business Valuation Handbook.

Business Strategy
7 Mar 2024
4 minute read

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