Formal valuation by experts hired for the job.2) Semi formal valuation by interested attorney or accountant3) Informal valuation agreed upon by parties and arrived at by simple formulas.
An informal valuation between two factions can be as easy as: “We both agree that the business is worth $100,000 and we will both sign documents to that effect. Or, factions can use simple formulas such as:
(a) percent of sales
(b) percent of receivables and so on to arrive at a valuation.
Then both parties sign in agreement. The other forms of valuation depend upon who one hires to arrive at a third party, objective price for the business. Remember, the key to a valuation is that both parties agree regardless of what method was used.Most valuations are accompanied by life insurance where the next of kin or designated beneficiary receives the insurance money in place of the company paying the next of kin.
Copyright © Michael G Thomas CPA.