Top Reasons Why Business Owners Should Get a Business Valuation
A business valuation is a crucial tool for any business owner or manager, as it can provide valuable insights and information that can help inform critical business decisions.
There are several reasons why it is essential to know the value of your business:
Planning: Knowing the value of your business can help you plan for the future. For example, if you are planning to sell your business, it is important to know its value so you can determine an appropriate selling price. It is generally a good idea to include the sale of a business in retirement planning. The sale of a business can be a significant source of income, and it is crucial to consider this when planning for retirement.
Financing: If you need to borrow money to expand your business, lenders will often require an appraisal of your business to determine its value and assess the risk of lending to you.
Negotiating: Knowing the value of your business can also be useful when negotiating with potential partners or investors.
Estate planning: If you are planning your estate, knowing the value of your business can help you determine how to distribute your assets among your heirs or beneficiaries.
Benchmarking: Knowing the value of your business can help you compare it to similar businesses in your industry and see how you stack up. This can give you a sense of whether your business is performing well or whether there are areas where you can improve.
The frequency with which you should get a business valuation can depend on several factors, including your personal financial goals and the needs of your business. Some common reasons to get a business valuation include:
Planning for the sale of the business: If you are considering selling your business, getting a valuation can help you determine a fair asking price and ensure that you receive full value for your business.
Determining the value of the business for estate planning purposes: If you are including your business as part of your estate plan, a valuation can help you determine the value of the business for tax and legal purposes.
Determining the value of the business for financing purposes: If you are seeking financing for your business, a lender may require a business valuation to determine the value of the business and the amount of funding they are willing to provide.
Evaluating the performance of the business: A business valuation can provide valuable insights into the financial health and performance of your business, and can help you identify areas for improvement.
In general, it's a good idea to get a business valuation at least once every few years to ensure that you have an accurate understanding of the value of your business. However, the specific frequency will depend on your individual needs and circumstances. It's a good idea to consult with a professional, such as a business broker or accountant, to determine the appropriate frequency for your business.
Knowing the value of your business can help you make informed decisions about its future, secure financing, negotiate with partners and investors, and plan your estate.
By Dan Hansher
Dan Hansher MBA, Managing Partner & Founder.
With more than ten years in the Mergers and Acquisitions (M&A) industry, Dan is a recognized leader in the field, providing exit strategies, business valuations, and M&A advisory services to business owners in the lower middle market.
Follow DealCoach on Linkedin