A business valuation report is the complex process of and set of procedures used to estimate the economic value of a business. This economic value can be used to make financial decisions or determine the outcome of a major business event. In industries subject to constant change, such as construction, this can be a life saver for the company’s economic wellbeing. Ideally, an industry-recognized valuation expert—such as a certified valuation analyst—who has experience working with construction businesses with their taxes, accounting and advisory needs, can guide you through the process of getting a valuation to accommodate your desired business goals.
Unfortunately, construction business owners don’t always consider the benefit of getting their company valued until advised by a professional, often under legal need. In doing so, they miss out on the operational benefits of a business valuation. So, consider these six reasons why a business valuation can be beneficial for you and your company.
Mergers and Acquisitions:
Construction companies often engage in mergers and acquisitions to expand their operations and gain a competitive advantage. A business valuation determines the fair market value of the target company, enabling informed decision-making during negotiations and ensuring a fair deal for both parties. If you are considering purchasing a construction business, a professional will help you understand the factors impacting the value of that business to avoid potentially unpleasant surprises further down the line. If you’re considering selling, a valuation ensures you know the worth of your business to minimize the likelihood of underselling.
Investment Decisions:
Construction firms sometimes require funding for projects, expansion and capital investments. Potential investors use business valuations to assess the financial health, growth prospects and overall worthiness of the business. It helps determine the value of their potential investment and negotiate terms accordingly. Consider the benefit of a valuation if you are considering a strategic expansion and plan on seeking funding support.
Financial Reporting and Compliance:
An accurate business valuation is crucial for financial reporting purposes. It ensures compliance with accounting standards and industry regulatory requirements. Valuations help determine the fair value of assets, liabilities and intangible assets, to be recorded on your financial statements. They also impact business taxes and adherence to relevant laws and regulations.
Dispute Resolution:
In business as in life, disagreements occur. Construction projects occasionally face legal disputes, such as contract disagreements, partnership dissolutions or insurance claims. Some disputes require a business valuation to demonstrate the impact of an action or assess fair compensation for the parties involved. Business valuations can be useful in settlement negotiations, court proceedings and arbitration processes. If your construction business is facing a current legal dispute, speak with your accountant or attorney on how a valuation can help your case.
Strategic Planning and Decision Making:
Business valuations are not reserved for specific events but can be performed at any time. A thorough business valuation provides insights into a construction company’s strengths, weaknesses, opportunities and threats. It helps management develop effective strategies, identify areas for improvement and allocate resources efficiently. It also assists business owners make informed decisions about business operations, investments or divestitures.
Estate Tax:
As with other businesses, construction companies must anticipate potential challenges, including the unfortunate possibility of an owner’s passing. The estate of a deceased business owner faces a significant tax liability on the total value of the owner’s assets, including their share of the business. The IRS mandates a comprehensive business valuation as an integral part of filing the federal and state estate tax returns. This is particularly pertinent for construction businesses, given their intricate asset composition. Enlisting the services of a skilled accountant to conduct this valuation guarantees an accurate determination of estate tax obligations. An accountant also helps alleviate any unnecessary burden for the beneficiaries.
Succession Planning:
Many construction companies are family-owned or closely held businesses. If your business is family-owned, a valuation will assist you in the creation of a succession plan. Determining the worth of a business helps owners and stakeholders make informed decisions regarding ownership transfer, or selling the business at a fair value for all parties involved. Having an agreed-upon understanding of the value of the business by all parties can also minimize the risk of a dispute before one starts.
Overall, a business valuation plays a vital role in the construction industry by providing a comprehensive assessment of the business’ financial position and market worth. It enables informed decision-making, facilitates transactions, enhances financial reporting and supports long-term strategic planning.
The complexity and cost of a valuation often means business owners may avoid reaching out to a certified professional. However, the cost of not getting your business valued can lead to even greater expense in the long run. Consider reaching out to CBM now for assistance.
For more information, please contact Tom Bailey via our online contact form.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.
