Do you know how valuable your company is? No, we’re not talking about how much you think it’s worth. We’re talking about an independent appraisal of the worth of your company and how much it would potentially sell for. Welcome to the world of business valuation.
Why does this matter?
For one thing, it’s beneficial to have a qualified appraisal of the Company’s stock to provide stockholders with an estimate of their shares and their investment in the Company.
Further, a valuation is important for any stage business because it prepares you for a transaction triggering event, even when you don’t see one in your near future. Plus, you know what they say about best laid plans …
What do we mean by transaction triggering events? Here are just a few ideas:
When these types of things happen, they can cause a shift in your business and its future. It’s amazing how quickly your plans for your business may change when affected by these types of events. That’s why we recommend you consider including a well-defined valuation process in your buy-sell agreement.
Fine, tell me more.
One way to go about this is to choose a single appraiser now (not when the transaction triggering events have already occurred). Then have the appraiser conduct annual or periodic valuations of your business. This enables all shareholders to know and understand the value of your business throughout its lifecycle.
Why choose an appraiser early on? Well …
Why do I have a feeling there’s more …
Because there is. Other things you should probably be consider but haven’t probably thought about include:
As you can see, there are a number of potential issues that could result in your buy-sell agreement being a “ticking time bomb.” So it’s important to discuss these issues early and often with your shareholders and your business advisors.