Knowing what your business is worth yields valuable business intelligence
It's a common question among business owners: "Why should I go through the trouble of having a business valuation performed if I'm not currently considering selling my business?"
Even if your intent now is to maintain ownership of the business, having an accurate gauge of your company's value provides a multitude of valuable information, enabling you to make intelligent decisions about important issues.
A business valuation provides a baseline of value for your business at a specific point in time. Many business owners think they know what their business is worth; sometimes expectations turn out to be reasonably accurate, but in other cases, they are misaligned with reality.
An accurate business valuation will either confirm or challenge your expectations. If the value of your business ends up being below your expectations, knowing that now gives you time to plan on improving and growing the business to achieve the desired value.
It also helps you understand key metrics that drive the value. After all, you do not want to be underwhelmed by offers when it does come time to sell, because your expectations are not in line with how buyers view your business.
Strategic and exit planning
A valuation offers a true assessment of your company's profitability and growth trends. This can be used to develop a strategic plan or an exit strategy for your business. Developing a three-, five- or 10-year plan will allow you to focus on areas of the business that will maximize the value of your company. Businesses often are part of your family's estate. Understanding the business' current value and the path your business is on, will help ensure you are on track for your estate planning.
Industry comparison
The data and analyses of a business valuation include industry ratios and metrics that will help you determine how your business compares to similar businesses in your industry.
Having reliable industry data is important in assessing key performance indicators such as your asset utilization, profitability, and use of leverage versus your competitors. This can help identify not only where your company is strong, but also where it can be improved and de-risked before a sale.
Benchmarking progress
As mentioned earlier, a business valuation measures a company's value at a specific point in time.
If valuations are performed regularly, you have the intelligence necessary to measure the improvement in value from one time period to the next. It creates accountability for strategic plans or exit strategies and allows you to track progress toward your goals.
Capital investment
If you are considering expanding your business and seeking additional equity funding, a business valuation is an essential first step that is typically necessary when securing capital. The negotiation with new investors often will focus on value and the amount of ownership that will be provided in exchange for the planned investment.
Life can be unpredictable. Events around your business can evolve quickly and change your reality. Valuations are an essential tool that allows you to assess your company's current performance and set a future course.
• MichaelSilver's valuation and management consulting team can assist with your valuation needs. We can also help develop your strategic plan and structure your succession plan. Contact us at (847) 982-0333.