The Strategic Advantage of Business Valuations: Plan for Growth and Success

When someone suggests having your business appraised, it might feel like a hint to start planning your retirement. But a business valuation serves far more purposes than simply preparing for a sale.

Think of a valuation as a strategic checkup — a way to measure the health of your business and identify opportunities for growth. Let’s explore how a valuation can help you navigate challenges, seize opportunities, and plan for the future.

A Diagnosis of Strengths and Weaknesses

Today’s economy presents both challenges and opportunities for businesses. For instance, rising interest rates, persistent inflation, and stricter lending standards may complicate access to financing.

A professional business valuation can provide lenders with a clear, data-driven picture of your company’s current financial health and growth potential. For example, the discounted cash flow section of a valuation report can illustrate how expected future cash flows could increase your company’s value over time.

Beyond financial data, an expert valuator will identify specific risks your business faces and suggest strategies to mitigate them. They might even uncover previously unknown weaknesses, giving you a chance to make improvements. Additionally, a valuation can provide insights into how well your leadership aligns with market conditions — a critical factor in navigating today’s competitive landscape.

Insights for Acquisitions and Sales

While valuations are often associated with the transfer of business interests, such as an acquisition or sale, they can also help you plan strategically for the right timing and circumstances.

If you’re considering acquiring another company, a valuation of the target business should be a cornerstone of your due diligence. It can validate the seller’s asking price and uncover potential deal-breakers or opportunities.

As a seller, a formal valuation adds credibility to your asking price. Many appraisers use databases to compare your business to recent transactions of similar companies, ensuring your pricing is competitive and reasonable.

Sidebar: Add Peace of Mind to Your Gifting Strategy

When transferring business interests to loved ones, filing a qualified appraisal with your gift tax return can protect your gifting strategy.

The IRS generally has three years to challenge a valuation for gift tax purposes — but only if the gift is adequately disclosed on a timely filed return. This disclosure must include details about the interest transferred, the terms of the transfer, and the relationship between parties.

By filing a qualified appraisal, even if you’re below the lifetime gift exclusion, you can start the statute of limitations clock and minimize potential challenges. A qualified appraiser will meet specific education and experience requirements, often holding a designation from a recognized professional organization.

Elevate Your Planning

A business valuation isn’t just a report — it’s a roadmap for your company’s future. By understanding your current position and identifying areas for improvement, you can make informed decisions about growth, financing, and long-term planning.

Reach out to a HoganTaylor Wealth or Business Valuation advisor to guide you through the valuation process and help you leverage the insights for smarter strategies.