Why Business Valuation is The Foundation of a Successful Family Succession Planning Strategy

You’re a business owner who’s spent a lifetime painstakingly building your business from the ground up. While it’s been a source of great pride, you’re now looking to step away and explore other business ventures or personal interests. The decision revolving around your business’s succession brings you to a financial and emotional crossroads. Do you sell, shut it down or pass it on to your next of kin? The last option is fraught with several complications, not the least of which is how to segment it practically, combat tax issues and allocate value simultaneously. Moreover, even if your retirement and the subsequent transfer of business ownership is fifteen or twenty years hence, it is never too early to formulate a plan that will guarantee a lucrative ROI and ensure a smooth and successful transition.

Insomuch as creating a family succession strategy is concerned, it is always in your best interests to consult with an experienced valuation professional. There are just a handful of accounting firms in Markham that can provide reliable and result-oriented advice. At HSM, we strive to take these services a step further. A formal valuation process is the cornerstone to deciphering the required measures to achieving your succession goals. Statistics suggest that about 90% of businesses in North America are, in fact, family owned. What’s alarming is that nearly two-thirds of closely held companies do not endure the harsh competitive and financial realities to survive into the second generation. Perhaps, the low survival rate can be rightly attributed to the fact that not many business owners adequately plan for the transfer of ownership.

These benefits highlight the important role that a professional business valuation plays in family succession planning.

Grants Access to Expert Information and Advice That Will Help Reposition Your Business For Future Growth

To put it simply, a professional business valuation is the process of estimating the accurate economic value of the business, from an unbiased standpoint, by assessing variables such as net earnings, revenues and projected cash inflows. The ensuing figure, or the fair market value, is what enables your shareholders, partners, investors and buyers to be on the same page and avoid points of conflict regarding what the business is worth.

If you own a small business, it will be impossible to know the traded value of your company upon which to base your transition or succession planning tactics. A professional and expert valuator knows the right questions to ask when arriving at the fair market value. Besides these, the valuator will also help you understand which factors play a crucial role in creating value for your business. What this means is, with this information in hand, you will be equipped to hone in on key valuation drivers on an ongoing basis that helps you reposition the business in time to generate a higher sales price when it comes time to transfer your business’s ownership to your family members. Not only that, a good valuation will also help you plan in advance for things like business management, discounts for marketability and liquidity, brand equity and longevity and family business reputation.

Cements the Possibility of Tapping into Tax Incentives and Lucrative Estate Planning Tactics

Having a realistic idea with regards to the value of your business is just good business. Valuations reap multifarious benefits when it comes to transferring the business within the family. These benefits can be tapped into by way of investing in a multiyear gifting plan that smoothens the transition and helps you gauge whether to sell to trusts of the family or second-generation family members. This will achieve a three-fold goal: successfully transferring the business, becoming eligible for relevant tax incentives and enforcing valuable estate-planning tactics ahead of time.

Helps You Secure Your Financial Future

Putting your future finances in jeopardy is the last thing you’d want to do. Your business is a powerful economic engine that has not only provided for a comfortable living for you over several years, but also that of your family’s. As such, it’s easy to understand why, as a business owner, you’ve become accustomed to high annual cash flow levels.