5 Key Reasons for a Professional Valuation

For business owners at any stage, knowing the true value of their company is the foundation of sound, profitable decisions. High-level value estimates may provide a general sense of worth, but only a comprehensive valuation report can support tax, transaction, and legal requirements. At Chaffe & Associates (“Chaffe”), our certified business valuation professionals offer a comprehensive process that applies the most rigorous business appraisal guidelines. In fact, “The Chaffe Difference” impacts every client interaction and analysis we perform.

Here are five key situations to obtain a valuation from our firm:

1. Securing family wealth through tax planning
2. Maximizing returns in a sale
3. Ensuring a smooth owner transition
4. Meeting mandatory financial reporting rules  
5. Providing validation during disputes

With our 40+ years of experience, we help you navigate valuations for tax, Mergers and Acquisitions (“M&A”), succession planning, financial reporting, and shareholder buyouts. Keep reading to learn about these reasons to obtain an impartial valuation.

At-A-Glance 

• Tax Compliance & Wealth Protection: Help secure your family’s financial future by providing the IRS with a defensible, qualified appraisal for gift and estate tax reporting, minimizing audit risk and costly penalties.
• Transaction Confidence (M&A & Succession): Maximize your sales price, strengthen negotiations, and smooth your exit by establishing a supportable Fair Market Value for buyers, partners, and succession planning.
• Financial Accounting & Legal Mandates: Aid your company to comply with GAAP financial reporting, manage shareholder buyouts, and address dispute resolution with a formal valuation that adheres to USPAP and SSVS standards.

Table of Contents

1. Reinforces Gift and Estate Planning and Reporting
2. Supports Stronger M&A Transactions
3. Facilitates Succession and Owner Transition
4. Complying with Financial Reporting Standards
5. Validates Valuation for Shareholder Buyouts and Disputes
FAQs
Contact Chaffe

1. Reinforces Gift and Estate Planning and Reporting

Our valuations provide the IRS with the support you need for confident gift and estate planning. It can minimize tax risk for your family’s financial security. A valuation that does not follow the IRS regulatory standards can be disregarded by the IRS.

Reporting ownership gifts to the IRS

When gifting shares, an IRS valuation requires an unbiased, fair-market-value analysis. Our reports are prepared to meet the recognized business valuation standards of the IRS. Obtaining a less rigorous valuation presents IRS audit risk. This could result in costly penalties. At Chaffe, we can help provide you with peace of mind.

Satisfying IRS estate tax mandates

The IRS has strict rules for valuing a business for estate tax purposes. As a business owner, you may want a successful transfer of ownership and, at the same time, worry about unexpected tax bills for your family. Our team of certified business valuation appraisers provides well-supported reports that have stood up to IRS review.

2. Supports Stronger M&A Transactions

Are you seeking a seamless sale and worrying about leaving money on the table? A professional valuation supports stronger M&A transactions. As part of the benefits of a business valuation, our comprehensive report helps you:

1. Validate your company’s worth to buyers
2. Remove sales roadblocks
3. Strengthen sale negotiations

Chaffe’s valuation process goes deep to capture transferable value. Elements that can raise it include recurring customer contracts, efficient operations, and proprietary systems.

Aligning Owner Expectations

Not having an independent valuation can present greater uncertainty. Our objective report sets a realistic, supportable price target that calibrates owner expectations, so you and your team can enter talks with confidence and achieve an effective transfer of ownership.

Identifying Business Gaps and Benchmarking Performance

A quality valuation functions as a diagnostic tool. We compare your company against similar businesses in your industry. This process shines a light on areas before a buyer does, where you can improve profits or fix weaknesses. This proactive M&A valuation potentially enhances your sale price by making your company more appealing to an acquirer.

3. Facilitates Succession and Owner Transition

A valuation prepared by a qualified appraiser underpins an effective transition. Knowing the value of your company helps you set up a favorable succession plan, assisting you in evaluating options in your exit strategy planning.

Developing Business Succession and Exit Strategy

A professional valuation begins your first step in building a solid plan to exit your business smoothly. It gives you a snapshot of your company’s succession planning value today. Based on this analysis, you can determine the best way to move forward in the process, considering the various scenarios. Your exit strategy might include examining selling to a third party, passing it on to a family member with a valuation that meets the IRS definition of a Qualified Appraisal, or transferring to employees.

Considering Employee Stock Ownership Plans

An Employee Stock Ownership Plan (“ESOP”) allows employees to own shares in the company. A USPAP/SSVS-compliant valuation establishes the fair market value of the stock for the ESOP, and measures the share value annually.

Chaffe can help you navigate this complex process, based on our knowledge and experience with the entire ESOP landscape. Chaffe can help with all stages of an ESOP, from feasibility studies, annual valuations for compliance, and exit options.

Structuring Buy/Sell Agreements

If your business has more than one owner, a Buy/Sell Agreement sets the rules for handling an owner’s share if they leave, retire, or pass away. An USPAP/SSVS-compliant valuation helps determine the agreed-upon price. This process can avoid lawsuits by supplying a fair value that allows the business to continue operating without disruption.

4. Complying with Financial Reporting Standards

For many companies, intangible assets represent a significant portion of total enterprise value. When a business merges with or acquires another company, a financial reporting valuation allocates the purchase price across all purchased assets, whether tangible or intangible. The company must properly record the purchase price of the deal and correctly identify the value of intangible assets in alignment with Generally Accepted Accounting Principles (“GAAP”). Chaffe’s capabilities include a wide range of experience for complying with these fair value accounting standards.

Measures Executive Stock Options and Compensation

Accounting rules require that a company’s financial statements accurately reflect the cost of awarding stock options as well as equity-based compensation. An objective valuation determines their fair value. A Chaffe valuation complies with GAAP standards for transparent reporting of the company’s expenses and financial performance.

5. Validates Valuation for Shareholder Buyouts and Disputes

In a change in ownership a formal valuation helps establish compliance with the shareholder agreement. It provides a non-biased valuation needed for shareholder buyouts. This type of valuation also centers around owner disputes, offering an objective benchmark that helps legal teams and courts reach a final resolution.

Establishing Value for Shareholder Buyouts

When one shareholder needs to buy out another, an in-depth valuation determines the fair market value of the departing owner’s shares. This process, often required by shareholder agreements, may help resolve valuation conflicts on an equitable basis for all parties. An independent valuation provides the legal documentation and justifiable basis needed to complete the buyout successfully.

Determining Valuations for Owner Disputes

When owners disagree on value, an objective valuation provides the court and legal teams with an appropriate assessment of the company’s value under the law and any relevant agreements between the owners. Chaffe’s dispute and litigation experience delivers a thorough valuation analysis and report under these circumstances.

Fairness Opinion Services

In addition to traditional valuation analyses, Chaffe provides Fairness Opinion services to support boards of directors, special committees, and fiduciaries in assessing whether the financial terms of a transaction are fair from a financial point of view. A Fairness Opinion delivers an independent, defensible analysis of transaction pricing, structure, and consideration that helps fulfill fiduciary responsibilities and enhances transparency for shareholders and stakeholders.

FAQS+

What is a professionally prepared business valuation?

A professionally prepared business valuation assesses a company’s value independently, performed by a professional holding a recognized valuation credential, such as the Accredited Senior Appraiser (“ASA”) and Accredited in Business Valuation (“ABV”). Learn more on our Meet The Team page. A professionally prepared valuation analysis and report applies the accepted valuation approaches and methods as described in the established industry standards below: 

Uniform Standards of Professional Appraisal Practice (“USPAP”)* and Statement on Standards for Valuation Services (“SSVS”).* These standards are also used to develop a valuation that conforms with an IRS-Qualified Appraisal, and GAAP financial reporting requirements.

USPAP* and SSVS*

Is it beneficial to obtain a valuation to sell my business? 

Yes, obtaining an independent valuation may be beneficial to deciding whether to sell your business or not. Knowing your company’s fair market value helps you understand a realistic asking price and informs your financial decisions with credible data.

Why do investors care about valuation? 

Investors look to an external valuation as part of making informed financial decisions. The valuation report helps them understand a company’s: 

1. risks
2. growth potential
3. future cash flows
4. and the expected return on investment

A qualified valuation supplies a level of due diligence for the investor.

When are USPAP/SSVS valuations required?

USPAP/SSVS valuations are most commonly required for tax compliance with the IRS, financial reporting under GAAP, and ownership transactions. They are also mandatory for certain dispute and litigation matters, such as shareholder disputes and divorce proceedings. Essentially, a valuation under these standards offers an objective, defensible value when needed. Chaffe is a leader in the Southeast region in performing professional USPAP/SSVS business valuations.

What is the timeframe for a valuation?

The timeframe for a professional valuation can vary. It typically ranges from four to eight weeks, depending on the purpose, and the business’s complexity and size. Factors like the quality and availability of the company’s financial records can influence the timeline.

Contact Chaffe

Thinking about getting a professional business valuation? Contact Chaffe today at (504) 524-1801 or Info@Chaffe-Associates.com to learn more about “The Chaffe Difference” and how we can assist you with company valuation services.

About Chaffe

Chaffe & Associates, Inc. (“Chaffe”) provides highly specialized investment banking services to its clients including a full suite of transactional advisory services along with valuations for a multitude of needs. Chaffe leverages both core competencies to create a powerful finance firm that always places its clients first. Founded in 1982, its clients range from sponsors, founder-led and family-owned businesses to publicly traded corporations spanning a broad spectrum of industries. For more information about Chaffe and its leadership team, please visit chaffe-associates.com. 

Nene Glenn Gianfala , CPA/ABV, ASA-BV/IA
Senior Vice President, Shareholder
nene@chaffe-associates.com