Business valuation is the process to estimate the economic value of an owner’s interest in a business. The valuation process usually determines an estimate of the “fair market value” of a business, or simply stated, the price at which a willing buyer will pay for a business interest and a willing seller will accept, when each party is fully informed and under no pressure to act.

Business valuations are most commonly required in conjunction with the sale or purchase of a business, partner buy-sell agreements, partnership dissolution, financing arrangements, and estate, gift or tax matters. There are many other needs for valuation services such as litigation consulting, marital dissolution and separation of assets, dissenting shareholder issues, new venture or franchise evaluations, and succession planning.

Business valuations provide real benefits to small, family-owned, or privately-held businesses. Unlike valuing a publicly-traded company, by simply looking-up its share price on a public stock exchange, valuing a private, small business is not as simple, but the process could be very beneficial to the owner.

According to SCORE, the national non-profit association (supported by the U.S. Small Business Administration) which has been helping small businesses for nearly 50 years, a business valuation provides an opportunity to ensure your business will survive and prosper in the future: “Understanding the factors that determine the value of any business will pay tangible dividends by focusing you on ways to increase your firm’s short and long-term profitability. Moreover, if you choose to sell your business at some point in the future, this knowledge will assist you in positioning your company to receive the highest price.”

The American Institute of Certified Public Accountants and the National Association of Certified Valuators and Analysts are national accrediting bodies for business valuation professionals. As a general rule, Certified Public Accountants, through their extensive training, combined with experience in tax, auditing, accounting for small businesses and financial analysis, have an excellent background for dealing with the complexities involved in providing valuation services. Few professionals provide the breadth of experience and development the public accounting profession produces; and, thus, a CPA, accredited in business valuation (CPA/ABV), or a CPA with a Certified Valuation Analyst (CVA) designation, is the preferred choice in selecting the right valuation professional to serve your needs.

Rusty Eldridge is a CPA and CVA at Silas Simmons in Natchez.