NEW YORK ( TheStreet) -- Over the past three years I've found myself disagreeing with Warren Buffett more and more.
However, speaking to investors at
Berkshire Hathaway's annual meeting this year, he finally said something I agree with: "If business schools could offer just one course, it would not be on stock trading, the efficient market hypothesis or modern portfolio theory. Rather, B-schools should be encouraging students to learn the boring, but critically important, discipline of business valuation."
There are 27 million small business owners according to the Small Business Administration's 2009 census. I would posit just a small fraction of these actually know what their business is worth. Worse, typically, a small business owner has some 90% of their net worth tied up in the business.
This is a very dangerous bit of ignorance on the part of business owners. Reason: Ceteris Paribas, the federal estate tax exemption will fall from $5 million to $1 million at the end of this year. That mean if you own a business worth $4 million, upon death, $3 million is subject to federal estate tax as high as 55% or $1.65 million.The possible end games are not pretty:
- Litigate with the feds over the value of your business. Remember, this is the same Fed that has been printing money for the last several years.
- Wipe out your liquid net worth to pay estate taxes owed on the business.
- Sell the business to pay the estate taxes.