Financials

Determining the Valuation of Stock Options in Your Business

There are 2 primary purposes for stock options.

  1. Part of an employee benefits package
  2. To pay for goods and services to help companies retain cash
Determining the Valuation of Stock Options in Your Business

Both of these purposes are valuable and beneficial to both the company and to the recipients. No matter which reason the stock is being used, it is important that the issuer know the value of what they are “paying or giving” away and that the recipient has an idea of the value they hold. A certified valuation service is a very specific field which uses a variety of techniques and strategies to determine the value of stock options.

The first step to determine the value of stock options is to determine the value of the company and the overall stock (equity element) value. Only then can a valuator apply the options valuation models to determine the actual stock options package value.

Keep in mind that the overall stock value is not the same as stock option value.   This makes it possible for employees to clearly know the value of their benefits package, and enables the employer to adjust packages to compensate employees at different levels. When using stock options as compensation for goods and services the stock options valuation ensures that the value is commensurate with the goods or services received.

Without a certified valuation service it can be difficult to ensure that a company is providing a valuable benefit to employees or are adequately paying for goods or services by offering stock options. The IRS usually now requires an independent valuation of stock options when they are issued and exercised.

A typical business owner is not prepared to apply valuation models and tackle the financial and mathematical calculations required to determine the best valuation model to use. Let the professionals help you find out the value of your stock options so that you can be sure that you conform to IRS guidelines, adequately compensate employees or are adequately compensate services and goods providers.

Category : Financials

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About the Author: Dale Richards

Dale S. Richards specializes in management, marketing, operation optimization & business valuation consulting and is a 20+ year turnaround expert.  He has implemented success concepts into results in 150+ co

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