Robert H. Jones, CPA, CVA
Jones Hall Advisors
521 E. Joppa Rd. Suite 104 | Towson, MD 21286
Tel: 410-321-0206 Ext. 18 | Fax: 410-321-0951 | E-mail: bjones@jhacpa.com

Business Valuation Concepts

Valuing an entity has become more prevalent in today's business world, especially for privately held companies. Ownership interests in these companies often represent a significant portion of one's estate and/or portfolio. The value of an interest in a privately held company, as opposed to stock in a public company, is usually unknown because there is no active market to sell or trade that interest from which to ascertain or approximate value.

Common reasons why an owner of a privately held company might require a business valuation include:

• Buying or selling a business
• Gift, estate and inheritance tax valuations
• Evaluating family assets in a divorce
• Determining the value of charitable contributions
• Establishing asset value in a bankruptcy
• Determining damages for liability lawsuits
• Obtaining financing or additional capital to grow a business
• Determing value for employee stock ownership plans (ESOPs)

Business valuations are also commonly used in financial planning. A prime objective for all business enterprises is to improve and maximize its value to the owners. A properly prepared business valuation provides management with insightful information that helps identify company strengths and weaknesses that affect value, allowing them to more effectively work on their business rather than in their business.

The National Association of Certified Valuation Analysts, the nation's leading organization supporting the business valuation discipline, recommends a valuation of a business enterprise be performed every two years for management purposes, if for no other reason. No matter what the reason may be for valuing your business, one thing holds true...the valuator's task is to use professionally accepted methods to arrive at a well-reasoned and defensible estimate of value.