Do I need a formal valuation for the tax authority?
Only where a transaction between related parties has to be shown at arm's length — share transfers, restructurings, gifts and inheritance. Not for deciding whether to sell.
Only where a transaction between related parties has to be demonstrated at arm's length. A sale to an unrelated buyer establishes value by itself — that is what a price is.
When a formal valuation is genuinely required
- Transferring shares to family, a partner, or your own holding company
- Bringing a shareholder in or buying one out at a negotiated price
- Gift or inheritance where the value must be substantiated
- A shareholder agreement that specifies an independent valuer
- A court process — divorce, dispute, dissolution
- A lender requiring one as a condition of finance
In each case the deliverable is a signed document with liability behind it, not a number. That is what you are paying for.
When you do not need one
Deciding whether to start a sale process. Judging whether an approach is worth answering. Working out which improvement to make first. Settling an internal transfer where both sides trust the method and are not related parties.
For these, a defensible range with the assumptions written down is enough, and it is enough considerably earlier than most owners believe.
How to value a business covers the method either way, and what buyers look for covers why a real transaction is the strongest evidence of value there is.