When Does It Make Sense to Value a Business? Practical Situations from Practice

Business valuation is not just something you need when selling a company or negotiating with an investor. In fact, there are many situations where it can make sense to know the value of a business -- even when it seems that no transaction is being planned.

Here are several specific examples from practice where business valuation provides significant value.

Contents

• 1. Probate Proceedings and Property Settlement
• 2. Divorce
• 3. Entry or Exit of a Partner
• 4. Negotiation with an Investor
• 5. Internal Strategic Decision-Making
• 6. Selling the Business
• 7. Transition from Sole Proprietorship to LLC

1. Probate Proceedings and Property Settlement

Upon the death of a founder or co-owner, the assets must be fairly divided among the heirs. If the estate includes an equity interest in a company, a valuation is essential. In many cases, the heirs do not even know the value of the business and may have very different expectations.

Practical impact: The valuation ensures transparent settlement and prevents family disputes. The notary also has a relevant basis for distributing the estate.

2. Divorce

If a business is part of the spouses'/partners' joint property, its value becomes part of the property settlement. These are often companies that were built together or during the marriage, which can lead to claims from both sides.

Practical impact: Thanks to the valuation, the company's value can be determined as part of the marital property, avoiding speculation or overvaluation by one party.

3. Entry or Exit of a Partner

When a new partner joins, it is important to determine at what price they enter and how large a share corresponds to their contribution. Similarly, when buying out a departing partner's share, a fair value must be established.

Practical impact: The valuation ensures balance between partners, prevents conflicts, and builds trust in the transaction.

4. Negotiation with an Investor

An investor wants to know the actual value of the company so they can calculate the return on their investment. The founder, in turn, needs to know what percentage of the company they are giving up for the investment. Without knowing the company's value, it is difficult to negotiate.

Practical impact: A quality business valuation provides the investor with confidence and the company owner with assurance that they are not selling the investment below its worth.

5. Internal Strategic Decision-Making

Are you planning an expansion, scaling production, acquiring another business, or simply looking for a way to better manage your company? Knowing the value of your own company is the foundation for every responsible decision.

Practical impact: The company's value serves as a benchmark for evaluating the return on planned investments and for setting corporate strategy.

6. Selling the Business

Perhaps you are not considering a sale right now, but sooner or later this situation may arise. Without a timely valuation, sellers often do not know what price to demand, and buyers can take advantage of their unpreparedness.

Practical impact: When you know the value of your company in advance, you have time to prepare the business, increase its attractiveness, and achieve a better selling price.

7. Transition from Sole Proprietorship to LLC

If you decide to transfer your business from a natural person (sole proprietorship) to a legal entity (LLC), it is advisable to know the value of your existing trade. Especially if you are establishing the LLC with other individuals or planning to transfer assets and clients.

Practical impact: The valuation helps set a fair distribution of shares in the company and serves as evidentiary material for accounting and legal purposes.