Not all business valuations are created equal. Whether you're planning for retirement, transferring ownership to family, preparing for a sale, or securing a loan, the type of valuation you need depends entirely on its purpose. Understanding the different valuation types is critical for both protecting your interests and making smart, informed decisions about the future of your business.
At a high level, business valuations fall into two main categories: Tax Valuations and Non-Tax Valuations. Tax valuations are formal, credentialed appraisals designed to meet strict IRS and legal standards. You’ll typically need one if your situation involves estate planning, shareholder transactions, or tax reporting. These reports provide what's called a “conclusion of value” – a definitive, well-supported statement of your business’s worth.
Non-tax valuations, on the other hand, are designed to give business owners and management practical, strategic insights. Whether you’re planning for growth, getting ready to sell, or mapping out succession, these flexible engagements often produce a “calculation of value” – an analysis that’s tailored to your specific goals without excessive formalities.
Choosing the right type of valuation ensures the outcome fits the intended purpose and helps you make decisions with confidence.
Those who were hopeful that “Liberation Day” would provide clarity and reduce uncertainty - and with it, reduced market volatility - were disappointed. They did get details, but not clarity. And the details were not pretty. Uncertainty continues. The probability of a recession has increased.
The proposed tariffs are draconian. A floor 10% tariff on all imports coupled with “stacked” penalty tariffs on top of reciprocal tariffs. The breakdown has been detailed in several publications and won’t be repeated here. At some level, the announced tariffs are a negotiation strategy. The objective is to get other countries to reduce their tariffs on U.S. imports. Some countries responded expressing an interest in negotiating. Others have announced retaliatory tariffs, most notably China which started at 34%. In the hours that followed, the U.S. and China have raised tariffs even higher in a high stakes game of chicken. China has devalued its currency to offset some of the impact of tariffs on the cost of its exports. The effect is higher costs for its citizens. Its retaliation has also included the sale of U.S. bonds which has swiftly increased yields, thereby increasing the cost of borrowing.
The President made a social media post yesterday saying that 75 countries have asked to negotiate without retaliatory tariffs at this time. As a result, he postponed many of the planned tariffs for 90 days. The markets responded with an extraordinary rally.
The new tariffs, coupled with existing ones, could bring U.S. tariffs up to 23%, the highest since the early 1900’s which had terrible consequences (refer to the Smoot-Hawley Act of 1930). Tariffs at that level will dampen short-term economic growth which has already been slowing. Estimates are that the announced tariffs represent a 1% drag on GDP for 2025 and a 1.5% to 2% increase in core Personal Consumption Expenditures (PCE), the Fed’s preferred inflation measure.
But the inflation may not be systemic. As an investment strategist for Natixis Investment Manager Solutions put it: “Inflation will rise, if these tariffs are implemented, but there is a big difference between a price level-shock and a persistent inflationary process.”
In a recent blog, I opined that an overbought market and China’s DeepSeek AI announcement were the impetus for the market drop that had occurred prior to last week. The tariff announcement was the catalyst for the final push down to fair value levels. Ignoring yesterday’s rally, the equity markets have tumbled into correction territory (bear market territory for the Nasdaq).
An Employee Stock Ownership Plan (ESOP) is a retirement benefit plan that allows employees to become beneficial owners of stock in the company they work for. Here are the key features:
Retirement Plan Structure: ESOPs are qualified retirement plans, regulated under ERISA (Employee Retirement Income Security Act), and are often used as an employee benefit similar to a 401(k).
Ownership & Motivation: Shares are held in a trust for employees, and ownership typically grows over time. This structure is designed to align employee interests with the company's success, promoting productivity and retention.
No Upfront Cost to Employees: Employees typically do not buy the shares themselves; instead, the company contributes stock or cash to purchase stock on behalf of the employees.
Exit Strategy for Owners: ESOPs can also be used as a succession or exit planning tool for business owners, allowing them to sell part or all of the company to employees while preserving the legacy and culture.
Tax Advantages: ESOPs offer significant tax benefits to both the company and selling shareholders, particularly in C corporations, where the seller may defer capital gains taxes under certain conditions.
In essence, ESOPs are a way to transfer ownership to employees over time, creating a more engaged workforce while offering a tax-efficient solution for business continuity.
Incentive Stock Option Plans (ISOs) are a type of employee stock option granted by a company to its employees as a form of incentive compensation. Here are the key characteristics of ISOs:
Tax Advantage: ISOs provide potential tax benefits compared to other types of stock options. Employees typically do not have to pay regular income tax when they exercise their options (although alternative minimum tax may apply).
Grant Requirements: ISOs must meet specific requirements under the Internal Revenue Code, including being granted with an exercise price not less than the fair market value of the stock on the date of grant.
Hold Period: To qualify for favorable tax treatment, employees must hold the stock acquired through ISOs for at least two years from the date of grant and one year from the date of exercise.
Employee Eligibility: ISOs are typically granted to key employees and must be exercised within a specified period after leaving the company or they will expire.
Company Benefit: Companies use ISOs to attract and retain talent, align employee interests with shareholder interests, and provide employees with potential ownership in the company.
Overall, ISOs are designed to motivate employees to contribute to the company's growth and success, offering them the opportunity to share in the company's future financial performance.
