Value determinations are often required to calculate estate tax upon death, split up of family assets in a divorce, and negotiate value in a purchase, sale or merger of a business. Other common reasons why a holder of an interest in a privately held company might require a business valuation include:

	Adequacy of Life Insurance
	Buy/Sell Agreements
	Bankruptcy and Foreclosures
	Charitable Contributions
	Disruption of a Business
	Dissenting Shareholder Actions
	Eminent Domain
	Employee Stock Ownership Plans (ESOPs)
	Franchise Valuation or Evaluation
	Gifting Programs
	Gift Taxes
	Incentive Stock Option Programs
	Liquidation or Reorganization
	Obtaining Financing
	Partner Disputes
	Split-ups/Spin-offs
	Succession Planning

Many business owners believe the value of their business is net profit, or gross sales, multiplied by some industry rule of thumb. It's not. In fact, using an industry rule of thumb formula often results in a value determination that differs greatly from the actual value that could be determined by a qualified business valuation professional.

An inaccurate value determination, regardless of whether it is high or low, generally leads to undesirable consequences. If it's too high, estate taxes will be excessive and savvy investors or prospective buyers will usually disregard a value that appears too high. If it's too low, you can be sure savvy investors or prospective buyers will recognize it and take advantage.

But, one of the best reasons for obtaining a business valuation is to use it as a management tool. 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 focus their energies in places that really count.