A professional business valuation helps business owners objectively understand their company’s financial health. Below, we explain why you need to know the true value of your business for gauging your company’s success, resolving disputes, and more.
Know Your Business Performance
The simplest reason every business owner should consider an objective business valuation is it gives them an impartial look at their performance and value. Owners know more about their business than practically anyone. Still, it’s easy for owners to overvalue or even undervalue their business because they focus on specific aspects instead of taking a step back and observing the bigger picture.
A valuation will provide a holistic snapshot of the business, which is valuable in comparing it to years prior and projecting where you want it to go in the coming years. Objectivity and impartiality are key in valuations, so owners should avoid the business valuation mistake of not hiring a professional appraisal.
Partnership Disputes
If you’re one of the many business owners with an equal or supplementary partner or shareholder, it’s wise to have a dependable and documented value should any disputes arise. Business partnerships can dissolve suddenly, and all shareholders should be prepared if disputes occur, including an objective valuation to reach a fair settlement. Sometimes, it’s not a dispute, but a partner wishes to retire or move on to something else—in either case, they’ll want fair value for their shares, and a fair valuation will help speed the process.
Attracting Investors or Buyers
Another reason you need to know the true value of your business is if you are looking to attract new investors or are considering selling the business entirely. An objective valuation is critical to attracting quality buyers if you’re listing the business for sale.
If you’re looking for additional funding from banks or venture capitalists, you’ll also need a fair valuation for investors to see themselves. For owners who want to acquire a new business and take out a loan for such an expansion, lenders will also need a quality business valuation to determine the capital they’ll loan and the loan-to-value ratio.
Succession Planning
Business owners also need a reliable business valuation regarding succession and estate planning. Even if you’re young and healthy and don’t plan on retiring anytime soon, estate planning is always necessary. Life is unpredictable, and you don’t want to leave your successors and business in a messy situation. A valuation will help determine the value of the assets and what you plan to transition or hold and will help you understand the tax liabilities that come with the succession. Such planning is critical to ensuring your business continues to thrive and prosper upon succession of ownership.
As you can see, there are many benefits to knowing the real value of your business through a thorough valuation. It’s recommended to have an annual valuation of your business, so if it’s been longer than a year since your last one, consider enlisting valuation services immediately.