Why do you need to know the value of your business?
There are many reasons why the owners of closely -held businesses need to know the value of their business interests, including:
For estate planning purposes, the value of the business interest may have a substantial impact on any estate taxes payable at the owner's death. In addition, the value of the business in relation to other estate assets can determine whether a deceased owner's estate is eligible for certain tax relief provisions, such as Section 303. Finally, a business valuation that meets certain requirements may fix the value of the business for federal estate tax purposes.
For business continuation planning purposes, it is important to be able to determine the price at which a closely-held business interest will be sold at an owner's death, disability, or retirement.
The owners of closely-held businesses who plan to gift all or a portion of their ownership interests must know the value for gift tax purposes.
A realistic business valuation can assist in obtaining additional business loans.
Knowing the value of the business can be helpful in justifying to the IRS the reasonableness of compensation paid to owner-employees.