The most common reasons for needing professionally prepared valuations are:

• acquisition or divestiture
• merger
• buy/sell agreements
• changing corporate status (i.e. from "C" to "S" corporation)
• estate and gift tax planning
• valuing stock options or warrants
• meeting requirements of employee stock ownership plans
• divorce property settlements
• obtaining or providing financing
• ad valorem taxes
• charitable contributions
• determining life insurance needs
• squeeze out mergers and dissenting stockholder actions
• minority stockholder actions
• bankruptcy

The value of a business may vary depending upon the purpose of the interested party. Normally a company's worth is defined by its ability to generate future profits. However, if the valuation is made for divorce purposes, different state courts apply different criteria. For estate and gift tax purposes, the IRS guidelines apply.

The value of a business may also be defined as its incremental value when merged with another company. In this case its valuation is based upon
"investment value."

THE ART OF ADJUSTMENT

Several discounts or premiums often are applied. When privately-held companies are being compared to publicly traded ones the most common adjustment is a discount for lack of marketability.

Discounts for lack of control or premiums for control may also be applied. These adjustments are frequently as much as 35% or more. Other premiums or discounts may represent subjective judgments based upon market information and various resources. While the valuation process employs a variety of well-defined statistical analytic techniques, it is in part an art. For this reason different valuators may conclude with different values. Experience is important to establish the credibility of the report.