Your business is arguably the single most valuable asset you own. But just how valuable is it? And, is the value rising every year? This answer often has vastly different answers depending on whom or why you’re asking. As the owner, you’ve worked very hard to build and grow your business – often at the expense of your own blood, sweat and tears. Knowing the true value of your business is critical to proper business planning and achieving personal goals.
The first step to making real progress in growing the value of your business is to know where you’re at today and how you compare to others in your industry. Then, you can know what is most important to improve upon. Though you track your revenue and profit every year, you may not consider other value factors such as property, inventory, assets and liabilities.
It is a misconception that you should only get a business valuation when you are thinking of selling your business. It is actually recommended to get a ballpark estimate of your company’s value on an annual basis.
Below, find the top 10 reasons why you should have a business valuation today:
To better understand your business and its potential. An annual business valuation will give you a good snapshot of your business’s current value, and how it can grow further. Your valuation gives you a starting point to track your growth goals.
When you plan to sell your business. When you’re looking to sell your business, having an estimate of what your business is worth will help you to get more out of the sale. When you understand the value of your business, you will be able to evaluate an offer and negotiate strategically. Fairly priced businesses will also sell more quickly.
- To know the value of your largest asset in order to properly plan for your retirement. 35% of business owners depend on the sale of their business to be financially prepared for retirement. The last thing you want is to be close to retiring, only to learn that your business is worth a fraction of what you thought. If your company is your nest egg, your valuation will tell how much you will receive and help assure a comfortable retirement.Your business valuation can also determine when you retire. If you are counting on income from the sale to support you in retirement, the sooner you determine whether your estimate of your company’s worth is realistic, the better.
- During buy/sell agreements with business partners.If you are selling your portion of the company to your business partner, or are buying off a partner’s share, learn how much your company is worth to get the most accurate dollar figure for this sale. If you are adding a new owner to your business, you will also need to know the value of your business to determine the buy-in price.
- In order to ensure that your business and your family are properly protected. If, God forbid, something happens to you as the business owner, having a current business valuation would help your family deal with the potential sale or dissolution of the business. Knowing the value of your business could also be important in divorce proceedings.
- When considering funding opportunities. If you are interested in expanding your business, taking your business valuation to the bank will help them make the decision to lend money.
- To plan for the future of your business with a qualified succession plan. You may be reaching retirement and you need to know the value of your business in order to construct an exit strategy. The valuation of your company can help determine the strategy.
- When building a trust or creating an estate plan. In many cases, the value of a business represents a sizable percentage of your net worth. Working on an estate plan is impossible without an accurate valuation. The valuation is particularly important if you have children who wish to continue to be involved with your business. Your valuation will also help determine the annual per share value of an Employee Stock Ownership Plan.
- When you plan to buy a business. When you’re looking to buy a business, knowing your own company’s value, as well as the company you’re interested in is essential. The business valuations will help you to better negotiate a fair price and to understand what your company will be gaining through acquiring the other business.
- To prepare for taxable events such as gifting or grants. Business valuations are used for gift tax planning purposes, such as transferring an interest to family members, donation to charity, transfer to an intentionally defective grantor’s trust, etc.
As things change, there are many reasons why having an up-to-date business valuation can help you plan for success. For many business owners, finding the true value of their business can be expensive and complicated. Valuations in the U.S. usually cost between $3,000 and $40,000 depending on the accuracy needed and complexity of the company involved. It can take up to three weeks, and requires substantial probing of your company’s financial documents, management, and operational structure.
I now offer business valuations. It’s easy, immediate, confidential and cost effective (or free!). Visit http://montewyatt.com/business-valuation/ and call (515-222-9193) or complete the form to see if you qualify for a free or cost effective valuation.
Posted on 5/19/2016 at 7:00:00 PM