Transferring ownership of the family business requires care and planning to ensure a smooth change of leadership. One frequently overlooked tool that can assist in the transitioning of the business to family members is a company valuation. Learn how getting the family business appraised can benefit all the relatives and related parties who work for the company.
Why You Should Obtain the Valuation Before Transferring Leadership
Imagine if you transferred the family business over based on a “ballpark” value thrown out by one or more of the current members involved. Older relatives who held leadership positions might be expecting a large payout. Others may have assumed the payout was certain and planned their retirement lifestyle on it. When the valuation of the company is not formally established by a independent appraiser when leadership transfers, the grounds might be set for a generational dispute if there is no real agreement or understanding of the true value.
If you engage the services of a business valuation expert, the resulting analysis and report would act as an objective neutral framework for the company that would guide all the family members involved. While the appraised value might fall short or potentially be higher than the perceived value, the process of getting the business appraised will take some of the emotions out of the leadership transfer.
Once everyone understands the true worth of the company, you can allocate the fair market value by the number of shareholders, and provide the owners with an idea of their retirement income, and plan for the next steps with the transfer of the business.
The appraisal can also help manage expectations and allow the new leaders to chart a course forward with confidence that they have all the facts needed to succeed. Instead of causing strife, the change of leadership can now strengthen family unity.
Getting Family Business Appraisals for Tax Purposes
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