How much is your business worth?
Do you know how much estate tax will be due 9 months after you die? Do you know how those taxes will be paid? Do you have a plan to pass the ownership and control of your business to family? Or members of management? Is your business insurance adequate? If your business was completely destroyed by fire, earthquake, or some other disaster woulf the reimbursement be adequate? If someone approached you to buy your company – and makes an offer – do you have any idea what a fair price would be? Or what if your business was taken from you? It happens all the time! One or more partners have the “votes” to sell the company without your assent or to terminate you and buy your interest out at a predetermined amount.
Corporate “divorce” is as emotionally charged and bitter as any case in family court. These unpleasant issues can be avoided by planning in advance. Knowing the value of your business and the proper way to value the business can prevent surprises and catastrophic economics.
Consider the case where one of the owners of a business died. The remaining owners bought the deceased partners share from his widow at precisely the value dictated in the buy-sell agreement. Everything worked as planned, right? Wrong! The IRS determined that the value in the buy-sell agreement was not “Fair Market Value.” The estate was assessed millions of dollars of additional tax. The business paid the contract value of the interest so the widow had no recourse against them. There ensued a protracted and expensive fight with the IRS. Even if she "won", she lost.