Subscribe

A Publication of WTVP

Individual investors keep a close eye on the value of their portfolios. But, as a small-business owner, are you also keeping careful watch over the value of what is probably your biggest investment of all—your business?

Although you may regularly monitor sales and profit figures, doing so without knowing how much your business is worth in today’s market is comparable to looking only at your portfolio’s earnings without knowing your portfolio’s overall worth. Just as investment decisions should be geared toward maximizing the value of your portfolio, the same criteria should apply to decisions that affect your small business.

If you’re preparing a valuation for tax and estate planning purposes, a "59-60" appraisal may be your best choice. Based on IRS Revenue Ruling 59-60 (the IRA standard for estate and gift tax purposes), a 59-60 valuation compares a privately-held company to public companies in the same or a similar line of business and then applies a lack of marketability discount or a control premium.

If, however, you’re preparing a valuation for a specific proposal such as a sale, merger or acquisition, you’ll need a more detailed appraisal tailored specifically to the proposal. In general, transactional appraisals will require more time and money than "59-60" valuations because of the additional factors (such as products, management and competitors) to be examined.

Regardless of which type of valuation you need, it should be updated on a regular basis. If you review your business plan once a year, consider updating your business valuation at that time. Doing so will help you to evaluate the effectiveness of last year’s business decisions and may even offer some insight into the year ahead. And remember, your business decisions—like the decisions that affect your portfolio—should always be geared toward maximizing the value of your investment. IBI