Business Valuation, Structure & Discount Planning
Passionate entrepreneurs believe their business is invaluable; however, establishing a method to provide for the valuation of a closely held business is a critical part of formulating a business succession plan to address business and estate plan objectives. Though valuation is in many ways an art, properly structured business ownership and well-crafted buy-sell and other ownership agreements may frustrate government agencies’ attempts to inflate the value of a business for estate and gift tax purposes.
At the core of effective valuation planning is qualifying the business interest for discounts recognized by the IRS and other taxing authorities. Among the most common are discounts for:
- Lack of Marketability – Ownership agreements may prevent owners from selling or transferring ownership in a business without first offering to sell to other owners or the company.
- Minority Interest – Owning a voting interest that cannot unilaterally decide or block approval of business decisions is usually worth less than owning an interest possessing those abilities.
- Non-Voting Interest – Lacking voting rights can result in a lower valuation as compared to the same interest with voting rights.
Maximizing discounts available to reduce the value of the business for tax purposes is a multi-faceted approach requiring careful analysis of business and estate planning objectives. Any valuation, structure and discount planning we do considers not only the tax and cash flow implications, but, most important, the key business and estate planning objectives from the perspective of the business owner, business successors and the business itself.