Business Valuation – Why Get One?
If your wealth is intrinsically linked to your business, as it is with many small to medium sized businesses, you might want to know what that business is worth as well as seek to enhance its value - for your retirement planning and later years lifestyle planning purposes.
What is a reasonable valuation?
The business valuation exercise can be as detailed and involved as you like and entail some considerable discussion to establish reasonable estimates where forecasting is concerned.
Accuracy and detail are required and important in order that the valuation correctly reflects the financial situation of and prospects for the business.
That said, realistically today and thanks to technology it does not need to take long (we have a developed a valuation tool that could take 30 minutes or less to generate a useful, defendable and accurate valuation) and equally it need not be an expensive exercise either.
What can a business valuation do for you?
Knowing where you are now is a good place to start when identifying where you want or need to be in the future. A company valuation is a first step on that path to enhancing your business value and building your future wealth.
By engaging in regular valuations, maybe every 6 months, you will gain knowledge of market conditions that are favourable and support a more attractive exit value for your business. When it comes to timing your exit, you will have a greater appreciation of knowing when that time is right.
A well-founded valuation will put you in a stronger position when seeking and negotiating funding, is part of the due diligence requirements for the lender or investor and may assist in giving you greater options.
A valuation may reveal opportunities for tax planning and tax reduction, releasing cash for reinvestment and growth, contributing to future wealth creation.
When one owner decides to leave, an independent valuation allows the process to be conducted fairly, reducing the scope for conflicts of opinion. Indeed, partnership agreements often require a valuation to be conducted annually, which can often be overlooked.
Other reasons for a business valuation include divorce, employee incentive programmes and insurance planning.
Plan for Your Future Wealth.
In summary, the reasons for an independent business valuation are varied and central to planning for your future wealth as a business owner.
You should seek a valuation from someone with experience in producing those for your specific need and be comforted in the knowledge that current technology makes the process quicker, easier and cheaper than ever.
If you're a business owner or looking to invest in one, please try our free market multiples (comparables) valuation application.
Alternatively if you are a practice looking to offer your clients a formal valuation, our platform provides a valuation wizard among other corporate finance tools to support your corporate finance function. Learn more.
