Original article contributed from Family Business Magazine [download now]
What’s it worth to you?
One reason for confusion over valuation is that there’s more than one way to value a company.
All too often in family businesses, family members are unaware of these distinctions. “They don’t understand how the companies get valued, and they don’t understand what it means to them – because nobody’s explaining it,” says Amy Wirtz, a consultant with The Family Business Consulting Group.
“People tend to have stars in their eyes about what the business is worth,” says Smith.
“If a family business decides to get a valuation to help the board assess what the company might be worth in the event of a sale, then [the valuation firm is] probably going to make that assessment at the highest level of value,” Harms says. “And just because a family member gets a whiff of that does not mean that that’s what their shares are worth today if they elected to sell their shares to the company.”
The amount of an exiting shareholder’s payout may differ depending on the circumstances, says Wirtz. (For example, a shareholder who is fired from the company might receive a lower payout or, in cases of egregious misconduct, no payout at all.)
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