A business valuation is essential because it will accurately determine your company’s value using sound principles and apply one or all three valuation approaches: income, asset, and market. However, the exact benefits of business valuation services can vary depending on the situation you find yourself in.
Regardless of whether or not you are selling your business, there are scenarios you should only face with a business valuation. So, when should you have a business valuation done? When is the right time? Here is when you should have a business valuation done, even if you do not plan on selling your business.
A succession plan does not refer to a retirement plan. Instead, it can mean restructuring your business or even closing it. A business valuation comes with great benefits, but more importantly, it enables you to make improvements to benefit you in the long run. Having an up-to-date business valuation makes creating an informative and strategic action plan much more straightforward. You can even use insights from your valuation to increase your business's value and, subsequently, your retirement packaging.
Suppose you are going through a divorce and start to divide liabilities and personal assets. Your business will likely be part of the process because the value of your interest in the firm is an asset. So your spouse may recieve half of your business's value. It is in your best interest to know the current value of your company so that you can split assets appropriately.
If you plan on growing your business, opening a new location, upgrading equipment, or launching new products, you may need an investor to offer you the funds to make this happen. Providing the investor or lender with an objective business valuation will help them decide while adding credibility to your argument.
Separately, a business valuation can expose areas of growth or risk. You can use them to create a growth strategy and set goals for your company. Business valuation can be a fantastic source of benchmarking for your firm against its past competitors and performance. More than that, it provides third-party insight into your company. It points out areas of weakness and opportunity that you did not even realize.
The process is similar to when an owner dies. If one of the owners wishes to leave the business, they have an ownership interest to divest. As the remaining owner, you may be required to purchase the shares at fair market value, but who determines it? A qualified business broker. Even if a business valuation is not required, it is always a great idea to have it done so that the transactions are transparent and reasonable.
Determine how much insurance you need to cover any life insurance buy-out agreements by getting a business valuation. Or, if your business is damaged in any way or hit by a natural disaster, you will know how much you can claim. That's an excellent way to protect your business. It can also reduce stress and workload if an unfortunate event occurs.
Business valuation can be used in other situations, including estate planning, transfers, adding new owners, or merging. In fact, it's a powerful asset when you experience any business disruption. Whether that is good or bad. It will help you make a decision that aligns with your needs and goals. Thus, it's best to consider having a business valuation done regularly. You can notice how your business's value changes, and find new areas of improvement or risk. Finally, you can use the appraisal as a compass for your company’s direction.