Most small business owners are often unaware of when they need a business valuation performed. Most of the time, this is because they’re not ready to sell. But that’s only one reason to get a valuation. You may want to engage a valuation professional for any of the following reasons:
- You want to strengthen your credibility. An independent, outside valuation builds confidence, from your employees to lenders to job candidates to future buyers, helping each evaluate your business.
- You wish to track your goals. If you’re planning to buy a new office building, launch a new product, add staff, or expand internationally, you need a way to measure your progress and how your efforts impact the value of your business. A valuation gives you a starting point.
- You are determining when you can retire. You may have an inflated sense of your business’s value. If you’re counting on proceeds from the sale of your business to support you in retirement, the sooner you determine whether your estimate is realistic, the better.
- You desire to expedite a sale or an acquisition. With a firm idea of what your business is worth, you are more inclined to price it attractively for interested buyers. Or you may want to merge with or acquire another company. An up-to-date valuation can allow you to move faster to take advantage of these opportunities.
- You need to do estate planning. The value of your business may represent a sizable portion of your net worth. How do you work on an estate plan without an accurate valuation of your asset portfolio?
- You are looking to protect your family. If something happens to you, your family may have to deal with a potential sale or dissolution of the business. The information may also be necessary in divorce proceedings or if you want to buy out a partner to add one of your children.
And, of course, you’d want an expert who will look at the general economy, industry conditions, financial performance, management experience, and debt-to-equity ratio. You say you don’t have time, because the business takes up all your days. And that’s precisely why you should invest in a professional valuation.
Don’t accept the misconception that your company is worth four times EBITDA — earnings before interest, taxes, depreciation, and amortization. That doesn’t take in the complete picture — your industry, business risks, cash flow expectations, and debt, for example. We can help you look at all the factors and get you started on a valuation for your business, so you’re prepared for the future, no matter what happens.