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A business appraisal can help you revalue your business for different reasons. But how often should your business be re-valued? Simple answer: annually. However, certain conditions, such as industry dynamics, can warrant frequent valuation. You can reach Wiley Financial for business appraisal in Phoenix, AZ if you need your business re-valued.
Ideally, you should re-value your business annually, especially if the company has multiple owners. A business valuation is valid for up to a year from the valuation date. However, cash flow, industry dynamics, concentration risks, and time until exit can warrant re-evaluation at least twice a year.
And this can be done through a business appraisal. An appraisal is an expert’s estimate of the value of an asset. Let’s see how the above factors affect the frequency of business appraisal.
Your business’s cash flow and profitability are important aspects affecting the frequency of business appraisal. If your business has little to no cash flow, then there’s no need for frequent re-valuing. On the other hand, if the company is profitable, you can conduct periodic appraisals.
A business appraisal can help one understand the key value drivers and risks. With this information, you can identify opportunities that can help improve the company’s value as you move closer to selling it. Annual appraisals will be ideal if you are a long way from selling it. If you are closer to exiting the business, you should conduct frequent appraisals.
You don’t need frequent appraisals if your business is in a stable industry, such as pharmaceuticals or food, with fewer large swings. However, companies operating in volatile sectors such as technology should have more frequent appraisals.
For small companies, significant swings in value can result from concentrations of businesses with a small number of customers, concentration in a limited geographic market or a static number of products or services. As you’d expect, more concentration risks make a firm’s value more volatile. As such, you should measure its value more frequently.
A company with multiple owners should be re-valued annually to keep everyone on the same page. It helps reduce disagreement among shareholders should one of the owners decide to buy out. An annual appraisal helps update the pricing in the buy-sell agreement.
Here at Wiley Financial, we perform business appraisals in Phoenix, AZ, as frequently as you want. We use industry-standard approaches and methods, providing you with the most accurate company value.
There are many reasons why you should conduct a business appraisal. Here are the most common:
Business succession comes in various forms, the most common being gifting ownership to the family. Furthermore, a business can be sold to third parties or employees. This transfer type is generally based on the company’s value which is determined through appraisal.
You might need a business appraisal to file an estate tax return. It will help guide the personal representative to fulfill the terms of the decedent’s will.
As long as the federal estate tax remains in place, it is likely that giving a gift to minimize estate tax will require the valuation of a business or a business interest.
Business appraisal is performed when one company acquires another. The buyer can reorganize its capital structure or split it up. An appraisal is also necessary when a company files for bankruptcy while liquidating or reorganizing.
A merger in Phoenix, AZ, will require both companies to perform an appraisal, while an acquisition may require only one party. A professional appraiser such as Wiley Financial should be involved for accurate company value.
A business appraisal may be necessary for a company to develop a buy/sell agreement. The agreement can be essential for business or tax purposes. An appraisal may be required to determine the company’s fair value if the sale is between related parties.
Besides, the agreement enables an owner to acquire another owner’s interest if they decide to exit or retire. The agreement contains the price at which the remaining owner will gain the interest of the exiting party.
When a private owner divorces, an appraisal may be required to divide the marital assets. Ideally, both parties will obtain separate valuations. However, they can hire a single appraiser, especially in collaborative divorces.
Closely-held business owners in Phoenix, AZ, will often seek a business appraisal to determine the ideal value to cover their business if something uneventful were to happen to them. The owner will purchase the value as “key person insurance.”
If something happens, the insurance company will pay the owner’s family to take up the owner’s role or buy themselves out of it. It is, however, dependent on the key person’s insurance policy.
Financial institutions and the SBA may require a business appraisal to underwrite and approve a loan, especially when acquiring a business or a business interest. Typically, financial statements are presented at a historical cost. An appraisal will provide the bank with fair market value amounts supporting a loan.
ESOP (employee stock ownership plan) is an employee benefit that enables investment in employer common stock. They provide liquidity, capital, and tax advantages to private companies that do not want to go public.
An ESOP requires an annual appraisal, which determines the price per share for the employees who are the beneficiaries. It should comply with the Department of Labor and Internal Revenue Service rules.
Ownership disputes arise from different circumstances, such as disagreements between owners or conflicts with dissolution or a merger. In Phoenix, AZ, businesses can dissolve, merge, or restructure without unanimous ownership consent.
Equipment appraisal uses three valuation types: orderly liquidation, fair market value, and forced liquidation value.
FMV is the price at which the buyer and the seller of a good or product have agreed independently. It usually represents the accurate valuation of the goods or services being traded. The conditions include the following:
The fair market value represents the economic principles determining the degree of freedom and openness in any market activity. FMV is used for legal situations, taxation, and insurance.
OLV is an estimate of the gross amount that a tangible asset would fetch in an action-style liquidation. The seller must sell their assets on an “as-is, where-is” basis. It assumes the seller will be given reasonable time to find all buyers, and the seller will have control of the sale process.
Unlike OLV, FLV does not give control to the seller. It is the amount of money a company in Phoenix, AZ, would fetch if it were to sell its assets in an auction immediately. It aims to identify a company’s financial position in the worst possible situation. The assumption is that the company will sell its assets in the quickest time possible.
Some common parts of restaurant appraisal include the value of your equipment and assets. Other aspects, such as the restaurant’s location and local economy, are fluid.
A restaurant’s reputation and brand recognition are a consideration, especially for well-established restaurant chains. Methods used in restaurant appraisal are income, market, and asset valuation.
As the name suggests, it is the process of determining the value of equipment a company owns. It helps you budget for parts, repairs, and when to sell or acquire machinery. It uses three methods: cost, income, and comparison.
As you can see, you should have your business re-valued at least once per year. However, industry dynamics and ownership might affect the re-valuing frequency. If you need frequent or annual business appraisal in Phoenix, AZ, Wiley Financial has got you sorted. Reach out to us to book a consultation.
Wiley Financial Services is a full-service accounting firm, specializing in Business Appraisals and Business Valuations, that has over 20 years of experience with a variety of industries ranging from restaurant, biomedical, manufacturing, advisory firms, nurseries, event design firms, IT firms, and many more. Wiley Financial is based in Oceanside, CA and we primarily service clients across the Western United States from our San Diego office.