Business Valuation - The "Date" of the Valuation
A business valuation will determine the value of a business as of a specific point in time. This seems like a simple concept, but has nuances that can often be misapplied. In essence, the specific point in time means that only the information that is known or knowable as of the date of value can be considered in a business valuation.
For example, if we we're asked to do a valuation of a company on June 30 and this company unexpectedly became 10 times larger by December 31, we would only consider the information known or knowable as of June 30. Similarly, if that same company went almost bankrupt two years ago but is performing well, it likely wouldn't make sense to use a liquidation value.
A business valuation may be requested as of a current date. This may coincide with the most recent calendar or fiscal year-end, or the most recent month-end if the company has the ability to prepare monthly financial dates.
A business valuation may be requested as of a specific date. For example, when preparing a valuation for estate tax purposes, an expert may be asked to value the business specifically as of the date of death of the owner. Similarly, for purposes of a divorce, the valuation may be requested to be at date of marriage.
Whether a current date or specific date is requested, the important point is that only information that is known or knowable at that point in time would be considered.
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Disclaimer: The information contained in this article is for general guidance only. The information presented should not be acted upon without the advice and guidance of a professional tax, legal, or financial adviser who is familiar with all the relevant facts.