If you run a large corporation, a business valuation is a critical part of your overall operations. The valuation process of a for-profit business is fairly straightforward, although some of the specifics of appraising assets and assessing income and debts to come up with a number that accurately represents the value of the business can make the process a bit more complicated. However, this process becomes even more complex when conducting a not-for-profit valuation.
The goals of a not-for-profit differ from for-profit companies. These businesses dedicate their services to making a difference in the community without focusing on turning a profit. While their goals vary, a business valuation is just as vital to their operations as it is for any company. Here are a few examples of organizations we have done not-for-profit valuations for and why these valuations are so important to their stature:
- Charities: Estate and tax considerations go into establishing Charitable Remainder Trusts, which means that the value of your stocks and other assets need to be appraised.
- Foundations: A valuation is necessary in order to obtain and maintain preferential tax treatment. If your foundation is bound by certain Treasury laws, you also need to know if you are required to distribute a specific percent of total assets annually.
- Healthcare Providers: In most cases, a not-for-profit valuation is required before one of these organizations can convert to for-profit status.
- Schools, Colleges & Academies: You need to value any donations that are contributed to your educational organization so that your records are accurate. This is not only important for your own records, it is also necessary to ensure that donors can receive their proper tax deductions.
Before a not-for-profit can make any important business decision, they need to know their overall financial condition. There may be instances where a not-for-profit can qualify for tax exemptions or preferred tax treatment that will benefit the organization’s margins. The only way to determine this is by completing a not-for-profit valuation. A valuation can also foster special financing options. For example, if you can prove your organization’s value to your bank, they are more likely to approve the funding you need to build a new center or expand your current operations. Similarly, a valuation can ensure you avoid any potential tax penalties. If you overstate the value of previous donations, your organization could owe money, which will depend on the severity of the infraction.
As you continue to look for expansion opportunities, keep in mind that a not-for-profit valuation can also strengthen your overall brand. If the community has a better understanding of your mission, they are more likely to offer their support, whether it is in the form of monetary donations or through volunteer opportunities.
When it comes time to choose an independent appraisal firm to complete a not-for-profit valuation for your business, make sure you are choosing the right professionals. The approach a firm uses to determine value depends on the goals and objectives of your not-for-profit organization. At Appraisal Economics, we have decades of experience appraising not-for-profit companies, and we understand what methods to use in order to determine fair market value.