Some business owners seem to think that the only reason you should get a business valuation is so you can sell or pass your business off to a successor. In reality, savvy business owners know to get a valuation every single year. After all, if you aren’t appraising the worth of your company each year, how do you display your company’s growth? It also serves as “insurance” for when the hiccups in life happen like accidents, divorces and natural disasters.
Knowing the Worth of the Business
If you’re even remotely entertaining the idea of selling your business obviously the first step is to get a business valuation. But smart entrepreneurs know to start the valuation before they plan on selling. This way, you are able to make changes to improve the worth of your brand and to end up with a higher selling price when you do eventually sell it. If you do ever decide to sell, knowing your resale value is the most important initial step.
*Pro tip: If you’re planning on selling your business, you should get your company valuation 2-4 years prior to when you actually put it on the market.
Having periodic business valuations is a good way to measure your company’s success. It helps you analyze the areas that could use improving. If you aren’t aware of your business’s current market value, there is no provable results. If your value is in decline, valuations serve as an introductory tool for strategically planning solutions. Valuation experts will help offer insight into different scenarios and help forecast the future of your business.
If you’re planning on expanding, you are going to need a current valuation to help get approved for bank loans, too.
Keeping Your Business in the Family
We all love those stories of when established family businesses first began with a “grandfather who passed it down to his son who passed it down to his son and will be passed down….” But, without business valuations, succession planning would be a complete mess. (And unless you hate your children and want to see them bicker over taxation and legal matters as you laugh from your grave, succession planning is extremely necessary.)
You need a business valuation so that you are able to figure out the most tax efficient way to keep it in the family.
*Pro tip: You want to start succession planning at a minimum of 5 years before your planned exit.
In Case of Disaster
In the event of a natural disaster destroying your business, having a recent valuation is important for insurance. It’s something smart business-owners consistently keep up with. 68% of owners don’t have formal disaster plans, however. It also helps to have periodic valuations just in case the owner becomes unexpectedly incapacitated.
Whether it’s a divorce or a partnership split, a dispute between owners causes some major issues if your professional assets have not been recently appraised.