Q: I have a business which I would like to establish a value for. Is there a commonly used or well accepted formula or multiple I can use in order to value my business?
A: Quite simply, there is no easy way under the Internal Revenue Code or literature available to value a business in a proper manner using a simple multiple of revenue or formula. While there are various methods to value a business, qualitative factors must be considered along with the quantitative. If you are having your business appraised, it is best to deal with a trained professional to get a number where the business can be sold or valued for estate tax purposes depending on your situation.
Q: My sons are interested in being in business with me and are convenient successors. Should I assimilate them into the business as my successors?
A: Children are not necessarily the best successors to your business. While they can be a good succession plan to follow, it is best to weigh the situation. Sometimes it is best to sell the business to a third party or another business, or even a key employee. While parents want the best for their children, handing them an enterprise with responsibilities, cash, liabilities, and pitfalls everywhere may end up being an unmitigated disaster.
Q: If I desire to bring my children into the business as potential successors, is there any recommended course of action that will assure their successful assimilation?
A: The answer to this question is that no one course of action fits all situations. As a general rule, engaging the successors in the business and having them take business courses and technical courses is never a bad idea. At any rate, challenging, testing, and grooming them is a much better endeavor than a walk-in type succession.
By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors