Business Valuations for SBA and Banking Purposes

Business Valuations for SBA and Banking Purposes

Smith Schafer Principal, John Edson, presented a free educational seminar Business Valuations for SBA and Banking Purposes at the Rochester Golf & Country Club. Click below to view full presentation.

Email [email protected] to be added to our seminar invite list!


If you would like to learn more about business valuations for SBA and banking purposes business, Smith Schafer can help. For additional information click here to contact us. We look forward to speaking with you soon.

5 Common Succession Planning Problems

5 Common Succession Planning Problems

Succession is inevitable in a business. When the time comes to start thinking about retiring and/or transferring ownership, it is essential to understand common issues related to the process. When a closely-held business owner is asked about their succession plan, it is often a topic that receives little thought, due to the amount of time consumed with day-to-day operations. Every business owner has an emotional and financial investment in their company and often times, is reliant on the proceeds from their investment to fund retirement. The earlier an owner can design a succession plan in their career, the smoother it will make the transition and maximize the financial rewards. To help clients, prospects, and others understand the common issues faced in succession planning, Smith Schafer has provided a comprehensive summary of the issues below.


For a majority of business owners, it can be hard to set a day to retire. It makes it even harder when the person’s current position is owning and operating a business they have built from the ground up. A significant reason to create a succession plan is to circumvent mixed emotions during the succession. 

Uncertainty by the owner raises the chance for risk to occur in the succession process. The owner may find themselves hesitant to develop a plan because it outlines the inevitable end to their role in a business. To eliminate fear and indecision later in the process, it is important to focus on developing a plan in a timely manner. 


Developing a timeline could be the largest problem a business owner may have when they approach succession planning. Preparing a business’s succession plan forces the owner to think about their own mortality and even business competency as they progress in life. It may be an uncomfortable conversation to have, but it will be key in determining the livelihood of a business when resignation, death, retirement or disability occurs. 

Recommendation: Become active in developing a succession planning. Think of the alternative, where there is nothing in place at all. If something happens to the owner or to another key person, the business structure is open to dissolve very quickly. Succession planning becomes a device to mitigate risk and provide foundation for the future. 


When thinking about a successor, not every business owner is fortunate enough to have a competent son or daughter that can easily fill a management role. If that option is not the case, here are steps to take when searching for a successor:  

  • Identify characteristics and skills – Many business owners try to look for a “me-type” of owner. This person often shares many qualities similar to that of the current owner. It is important to think of the characteristics and skills of a person as a whole. Find qualities that make a owner successful. This person may be different in many ways, but contains appropriate abilities to help continue business success. 
  • Promote from within – A successful business is rarely ran by one individual alone. Identify standouts in management and throughout the business that may have an interest in expanding their role in the business. There is a great benefit to having someone take over who understands how the business operates, the company’s culture and its keys to success. 
  • Transferring responsibilities – Once a successor is identified, it is essential to have a succession plan transferring different roles and decision making power. However, in our experience, owners tend to pass on certain responsibilities, while not giving up actual control. It is beneficial to adhere with the succession plan set in place and allow for a successor it flourish in their role.


Like any good business plan or budget, it is important to be realistic and set attainable expectations. Start by developing goals. These goals should create value for the business. Ensure every part of the succession plan lends itself to this goal. 

Identify benchmarks or a timeline for when things will occur. In many cases, this will be associated with the age the owner expects to retire. Without clear benchmarks, it is hard to know if a plan is on track or being executed effectively. Confirming the plan is being performed piece by piece, will make the transition easier.

Communicate the plan with management, family members or advisors. This makes it easier for an owner to be accountable for each step. An outside view of a succession plan may lend additional opinions and help ensure the plan is realistic.

Lastly, be active in the transition. When employees, management or family members see an owner pass on certain responsibilities or control in the business, it lets others know the succession plan is being taken seriously.  

Once succession planning is finished, it must be updated every few years. Changes in employees, industry or market conditions all contribute to plan revisions. Even if there are no major changes, there may still be improvement every time the succession plan is revisited. 


Part of developing a succession plan may be acquiring a business valuation. Some may think, if the actual succession is not for several years, there is no value in obtaining a valuation. Realistically, it may be difficult to make decisions regarding the succession plan without an understanding of the current value of the business. The value of a business does change over time, but a business valuation provides a benchmark for planning purposes. Having a business professionally valued creates a reliable number that can be communicated to potential buyers.

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Smith Schafer works with business owners, in multiple industries, to uncover the true value of their companies’ tangible and intangible assets. Whether you need help creating a succession plan or conducting a business valuation, our professionals can guide you. Click to contact Smith Schafer’s Valuation Services Group to schedule a free 30 minute consultation. We look forward to speaking with you!

Succession Planning Requires Smart Strategies

Succession Planning Requires Smart Strategies

Succession planning is important in any business, but it is sometimes overlooked in family-owned operations. This is a big mistake. There are numerous former family-run companies that no longer exist due to poor or no succession plan.

Some studies show that among family businesses, only about 30 percent succeed to the second generation and 10 percent into the third generation.

The plan needs to be well thought out and discussed with everyone affected. Do not just assume a son or daughter will want to carry on the family business. Even if your children say they will take over, they may not have the true desire required to continue a successful operation.

The “heir to the throne” also may not have the business skills to succeed after a parent (or aunt, uncle, etc.) turns over the reins.

Another question that needs to be settled in the case of multiple potential successors (for example, more than one child): What responsibilities will each person have upon succession? It is important the details be worked out early, because, in the case of an unexpected death or disability, succession might occur sooner than planned.

You also need to address the involvement of the next generation. In some situations, the retiring family elder has adult grandchildren — some who may already be working in the business. Beyond the discussion of the roles of younger family members, you will also need to outline the times for major transitions, barring unexpected illnesses or death.

You want to make sure that the future leaders of the business have the proper training. There are several different options. One is having younger family members work in several different areas of the business. Another is having aspiring family business leaders get some experience in another, non-family business to learn alternative ways of doing things.

The importance of preparing for succession cannot be overemphasized. Neither can the importance of transitioning the business in an orderly fashion.

Sometimes, as planned retirement nears, elder family members do not want to let go. This can cause resentment on both sides. Naturally, the elder family members want to see the business they built (or took over, if already a second-generation business), continue to succeed as it did under their leadership. They can be concerned that the firm won’t flourish without their direction.

At the same time, the younger family members may think they can bring the business to even greater success if the older relatives would just step aside. This is where a scheduled, gradual transition of management and leadership responsibilities from one generation to the next can help.

As they turn over the reins of the business, elder family members can be compensated through preferred stock in the corporation. They can also look to stay involved in business — if not directly — through participation in industry groups and associations.

Such actions recognize the contributions of retiring members and help them recoup their equity. Meanwhile, the new manager and active relatives can plan for the future. And once retiring family members are no longer immersed in the daily grind of running the business, they may be interested in pursuing non-business community activities, personal hobbies and travel that they never had time for before.

Consideration should be given to business and personal goals, as well as the plans of the next generation. Who has the most aptitude for leadership? Who wants to stay with the business?

Contact us today to learn how we can help you and your company or organization prepare for the next chapter personally, professionally and financially.

10 Reasons for a Business Valuation

10 Reasons for a Business Valuation

Most business owners are reactive when it comes to having their businesses valued. But there are many times it pays to be proactive. Some valuations are necessities, such as for determining the value of the business interest in an estate. Others are obtained for more elective reasons, but are helpful to business owners nevertheless and help business owners with planning strategies. 

It is a good idea to review these common valuation scenarios, so you can identify when it is time to obtain your own valuation. Below are 10 reasons to have your business or a business interest valued.


  • Business succession transactions may be accomplished by gifting the ownership to family. Gifting is most common with family successions.
  • The business may be sold to employees, third parties, or may be combined with some amount of gifting. This type of transfer of ownership will be based on the value determined when the business is valued on an as-is, on-going basis.
  • Businesses may be sold to a strategic buyer (someone in the industry). A transaction with a strategic buyer usually occurs at a value higher than the amount determined with for a traditional transfer to family, employees or an individual buyer with no other connections to the industry. The buyer may incorporate the revenue streams into their existing business and will be able to achieve increased profit and cash flow by consolidating specific overhead expenses. 
    Example: Two facilities may not be needed and common business functions, such as administrative may be consolidated and the costs may be eliminated. A specific Valuation engagement may be performed to determine an estimated value of the business if it is sold to a strategic buyer.


  • You might need a business valuation not only to file an estate tax return, but also to provide guidance to the personal representative to fulfill the terms of the decedent’s will.
  • As long as the federal (and some state) estate tax remains in place, it is likely that effecting a gift to minimize ultimate estate tax will require the valuation of a business or a business interest.


  • A valuation is typically performed when a company acquires another company, is targeted for an acquisition, reorganizes its capital structure, splits up or files for bankruptcy while in liquidation or reorganization.
  • A merger generally requires both parties to get a valuation, while in an acquisition, it may only be one party.
  • These valuations may create challenges, which require the valuation analyst to calculate cash equivalents for payment (i.e. stock versus cash).


  • A valuation may be necessary in order for a business to develop a buy/sell agreement. These agreements can serve tax or business purposes. If a sale will involve related parties, a valuation might be necessary to insure a proper value for estate and gift tax purposes. 
  • A buy/sell agreement allows an owner in a closely-held business to acquire the interest of another owner in the event another owner decides to retire, exit, or passes away.
  • These agreements many times include a designated price or formula to determine the price the remaining owners would pay to acquire the interest of the exiting owner.
  • This price or formula should be occasionally reviewed by a valuation analyst in order to keep up to date with the performance of the company over time.


  • Ownership disputes result from many different circumstances, most commonly including: disagreements between owners, disagreement with a merger or dissolution, or other related issues.
  • Many states allow businesses to merge, dissolve, or restructure without a unanimous ownership consent.  This may result in a dispute that requires a valuation as part of the settlement process.


  • In the event of a business transaction (i.e. merger, acquisition, sale, etc.), the purchaser and the seller need to properly record the sale.
  • Inconsistent and inappropriate allocation of the purchase price may result in an increased tax liability, and even penalties.
  • A valuation analyst will consider the differences in business goodwill over personal goodwill and the various state laws applying to these transactions and calculations.


  • When a private business owner gets divorced, a valuation may be required to divide the marital estate, whether by agreement of the parties or by a judge through a trial. Often both sides obtain separate valuations, but there is also a movement toward collaborative divorces in which the parties agree to hire a single valuation analyst.


  • Closely-held business owners will sometimes pursue a valuation in order to determine a value necessary to cover their business interest value if something were to happen to them. This value is then purchased as “key person insurance.”
  • In the event something happens, the insurance could payout value to the owner’s family to allow them to continue the owner’s role, or buy themselves out of the owner’s role. These rules are subject to buy/sell agreements and terms within the key person insurance policy.


  • Financial institutions and the SBA may require a business valuation in order to underwrite and approve a loan especially when the loan is to acquire a business or a business interest.
  • Typically, financial statements are presented at historical cost.  A valuation will provide the bank with fair market value amounts that can support a loan.

10.  ESOP

  • An employee stock-ownership plan (ESOP) is an employee benefit plan that invests in employer common stock. ESOPs provide capital, liquidity, and certain tax advantages to those private businesses whose owners do not wish to go public.
  • A valuation must be performed annually for an ESOP. This valuation determines the price per share for the beneficiaries of the ESOP plan. It is a very important valuation, because the ESOP trustees may be held personally liable if a beneficiary receives less than the fair market value of the stock.
  • This is required in order to comply with IRS and Department of Labor rules.

This is but a partial list of potential reasons to have your business valued. In each of these instances, it is important to have your business valued by a credential valuation professional. Smith Schafer works with business owners, in multiple industries, to uncover the true value of their companies’ tangible and intangible assets. Click to contact a Smith Schafer professional to schedule a free 30 minute consultation. We look forward to speaking with you!