Why does a Valuation Date Matter?

Why does a Valuation Date Matter?

If you are thinking about what your business is worth, then you are probably considering getting a business valuation. At the base of the business valuation is the valuation date. Schedule a free call with Peak Business Valuation, business appraiser Utah, to learn more about why a valuation date matters!

What is a Valuation Date?

A valuation date refers to a point in time in which an asset is assigned a dollar value. In this case, the valuation date would signify the date on which your business is assigned a dollar value. 

According to the Statement on Standards for Valuation Services (SSVS) 1, 

“The valuation date is the specific date at which the valuation analyst estimates the value of the subject interest and concludes to his or her estimation of value. Generally, the valuation analyst should consider only circumstances existing at the valuation date and events occurring up to the valuation date.”

Why does the Valuation Date matter?

The valuation date matters for several reasons. The valuation date is like a bookend. A valuation expert, like Peak Business Valuation, Business appraiser Utah, will only take into account any information that was known or knowable as of the valuation date. Anything that happens after the official valuation date is not included in the analysis. As such, the valuation date can dramatically alter the valuation results depending on surrounding circumstances.

One recent example would be the COVID-19 pandemic. If a valuation were to be performed as of December 31, 2019, COVID-19 would not be taken into account. However, if a valuation of the same business is as of April 1, 2020, then the value of the business could be very different. This depends on how COVID-19 impacted the subject business/industry. This brief example illustrates why a valuation date matters. Learn more about how COVID-19 will impact your business valuation

How does the Valuation Date impact me?

Divorce Cases 

For purposes of divorce cases and litigation, the valuation date is typically the date the divorce action commenced. It could also be the trial date. If there were some information that would benefit one party over the other, then the court may select a valuation date that they consider to be more “fair” to both parties.

Gift and Estate Valuations

For estate tax purposes, the valuation of assets is typically the date of death. However, under some circumstances, the executor may elect to use the “alternate valuation date.” This “alternate valuation date” is six months after the date of the death. This could be advantageous if the Company had declined prior to the individual’s death. If the “alternate valuation date” is selected, the valuation expert must value all the assets as of that date.

SBA and FMV Business Valuations

The business valuation date is important for SBA and FMV business valuations as well! If you are looking to sell or buy a business, both the seller and buyer need to select a valuation date. The valuation professional will then use that date when completing the business valuation. Once the buyer and seller select a date, anything that occurs after the valuation date will not be taken into consideration unless it was known or knowable as of the valuation date.

Summary

Although the valuation date seems simple in nature, it is a very important aspect of all business valuations! Make sure to consult with a professional like Peak Business Valuation, business appraiser Utah, to determine the most appropriate valuation date for your situation! Get started today by scheduling your free consultation below!

 

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