The Goralka Law Firm (of Sacramento, CA) writes about Revocable Living Trusts, Wills, Powers of Attorney, Living Wills, Healthcare Power of Attorney, Life Insurance Trusts, Family Limited Partnerships, Limited Liability Companies, Corporations, Charitable Trusts, Medi-Cal Planning, and Other Estate Planning and Tax Planning Strategies.
Why would you consider keeping your business valuation current? You might be able to think of one or two reasons, but there are plenty:
What if something calamitous were to happen to you as the business owner? It obviously would mean a major change. With an up-to-date business valuation, your family will have a much easier time dealing with the potential sale or dissolution of your business.
You never know when an opportunity to sell or merge with another company will come your way. You may have to decide quickly. With a current business valuation, you'll be able to take advantage of any juicy circumstances that may occur.
You may want to take on a new partner or LLC member. You'll need to know the value of your business to determine the buy-in price. The new owner will also want to see the valuation — to decide if the buy-in price is reasonable.
Do you have an exit strategy? Are you reaching retirement age? You'll need to know the value of your business to construct a plan. It could mean a restructuring. A valuation can help determine the strategy.
You may be thinking about expanding or building a new facility. The bank for sure will want a valuation of your business for financing purposes. With your valuation, you can streamline the process, more easily obtaining a lending decision.
What if your partners or shareholders want out? You'll need the valuation to figure out how to divide your business. With the information on hand, an unpleasant situation can be less stressful.
With a valuation, you'll have a benchmark to compare the value of your business before and after a business disaster occurs. After all, you can't go back in time to value your business as of a previous date — not with the utmost accuracy.
Divorce or other family issues may occur. With an up-to-date business valuation, you can help plan how to deal with personal emergencies and unpleasant events. Divorce? The court will almost certainly want to establish the value of your business as an asset of the marriage, but most likely, the judge will appoint a neutral third party to conduct the valuation. However, you may be able to avoid court entirely if you know the value of your business as you and your spouse begin discussions and negotiations to settle matters on your own.
You may want to determine the annual per share value of an employee stock ownership plan (ESOP).
Going Concern and GoodWill valuations are effected during the COVID-19 Crisis. Please note the following:
Under FASB sub-topic 205-40 and Auditing Standards Board SAS No. 132, company management must evaluate conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statement issue date.
Specifically, management must determine if the company will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued.
FASB Accounting Standards Update No. 2017-04 for ASC 350 requires a quantitative impairment test, whereby impairment loss is (be-would you like deleted?) measured as the excess of a reporting unit’s assets carrying amounts over their fair values. Prior to goodwill impairment testing companies must first test other assets including indefinite-lived and definite-lived intangible assets.
A company may still perform the optional qualitative assessment for a reporting unit to determine if it is more likely than not that goodwill is impaired.