As a small business owner, estate planning is a vital part of not only providing for your family's secure future but also for your business's continuation. And one key component of estate planning is a proper business valuation. Why is business appraisal so important? Here are five of the many reasons to get it right.
1. It's a Big Part of the Estate. For most small business owners, the business is one of the most — if not the most — valuable assets they own. This makes it a huge part of their overall estate. If you don't know what your business is worth, then, you can't accurately make many of the decisions involved in estate planning with any accuracy.
2. You Need It for Estate Taxes. Every estate is subject to federal estate taxes and may be subject to state inheritance or estate taxes. Whether or not your estate has to actually pay them or qualifies for exemptions and deductions depends on the size of the estate. Therefore, you need to know what each asset is appraised at in order to settle with the IRS.
3. You'll Need Valuation for Division. Do you have multiple heirs? If so, deciding how to divide all your assets is one of the most important estate decisions. If one heir will receive and run the business, for instance, how might you compensate others fairly? On the other hand, if you will split the business among heirs, how will you do so fairly either for sale or for operation? Any answer to these questions relies on knowing what it and its components are worth on the market.
4. It Can Forestall Conflict. Unfortunately, estates and inherited assets can cause family squabbles — some of which escalate into open family warfare over money and assets. Avoid this fate by having an independent and impartial business appraisal for all to see. Not only will heirs not use subjective assessments but they'll also better understand your decision-making process.
5. Your Heirs Will Need Valuation. Whether or not your estate must pay taxes upon your death, your heirs will have to deal with taxes in the future. If and when they sell a business or business assets, they'll need to know the correct market and/or appraised value of these when you passed away (known as the tax basis). Appraisal now will help get that information when you pass away.
Want to know more about how a business appraisal works? Unsure what you need to get an accurate valuation for estate planning? Start by consulting with an experienced business appraiser in your state today.
For more information, contact business appraisers near you.