Whenever I ask a business owner if he thinks a business valuation could benefit his business, the answer is something like this:
A Business Valuation? Oh, I’ll figure that out when I’m ready to retire … which is the day after never …
The wealth of nearly two-thirds (70%) of all small business owners is tied up in their businesses. For many of them, their business becomes the personal retirement savings vehicle. Sadly, most are driving blind.
Without knowing the value of your business, how will you know when you can stop working or what lifestyle to expect in retirement?
Having the information needed to prepare adequately for retirement is just one of the many benefits of a business valuation. Here are several others:
8 Business Valuation Benefits
1. Increase Value
What is measured improves, and a valuation is no different than establishing and overseeing a sales quota. A comprehensive business valuation provides owners with a clear explanation of the value of their business with evidence to support the result. It tells an owner if efforts need refocusing, or … even better .. if the company is headed in the right direction. The data guide strategic decisions and business development plans. It will help an owner determine whether the right people are in place to support long-term goals.
2. Capital Infusion
Outside investors and lending institutions evaluate the business plan, shareholder agreement, investment memorandum, and valuation before investing or loaning capital.
3. Mergers, Acquisitions, or Share-Swaps
A business valuation facilitates a negotiation between entities entertaining a possible merger, acquisition, or share-swap.
4. Dissolution of Partnership or Partial Exit By An Owner
When a business partnership fails or partners agree to part ways, the parties need to find a fair and equitable split of interests. Whether the weighting shares change, one partner buys the other out, or the partnership gets dissolved, a business valuation will facilitate the process.
5. Divorce
Business interests represent marital assets and could become part of an owner, partner, or shareholder’s divorce settlement. Both spouses may approach the settlement proceedings with independent business valuation reports, so historical valuations could provide valuable insights.
6. Tax Strategies
A valuation report can lead to tax benefits an owner might not otherwise claim. A current valuation is also required for estate tax settlements, to calculate capital gains tax liabilities, and for income or property tax disputes.
7. Employee Incentive Programs
A company must disclose its value to employees to satisfy the annual requirement for Employee Stock Ownership Plans.
8. Insurance Planning
Nearly three-quarters (70%) of small businesses do not have adequate insurance coverage. When an owner doesn’t know the value of their business, it is challenging to determine how much insurance is needed. Also, if an owner is injured or wrongfully distracted from the business, a historical valuation could help recover losses.
While business owners are often stretched for time, when it comes to discovering how much your business is worth, there’s no time like the present.
Our firm specializes in meeting the financial needs of small business owners, and business valuations are a critical step in our process.
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Image by Gerd Altmann from Pixabay