Many small businesses owners know their companies inside and out. Yet, they rarely know one critical fact – how much their company is actually worth on the open market. Determining the true value of a business, a process called “business valuation,” is not just important when the owner is looking to sell the company also for potential buyers and strategic planning of the current owners
A formal business valuation is also an essential tool for sellers and prospective buyers use to determine if they are interested in selling or purchasing the business. Ultimately, it offers a big picture “snapshot” of the owner’s interest and operations of a business and validates all financials along with other documentation. It is a tool that many buyers use to help them determine how much they are willing to pay for your business or the sellers to confirm the valuation and selling price of their business.
Despite the benefits, however, many business owners are apprehensive about what to expect when going through the valuation process. In some cases, valuations can expose areas of the business which actually take away from value, such as weak financial and accounting controls, under-performing assets and weaker operating ratios relative to its peer group. The entire valuation process can provide an overview of strengths and weaknesses of the reviewed company.
For future sellers, If you’re considering selling your business, for instance, you need to have an idea of the value buyers will see in your business as well as what will the bank perceive as the value. This can help you decide if you’re willing to sell now and what kind of price you can expect in the process as well as give you direction on what you need to do to increase value. Other reasons for small business owners to consider a business valuation include:
- To determine if an acquisition offer is sound.
- To resolve estate and gift tax disputes.
- To determine assets in a pending divorce.
- To buy out partners in your business.
- Partners are seeking to sell, this can determine the value of ownership interests.
- Decisions made in a contested estate.
The good news is that Valhalla Business Brokers offer certified business valuations performed by certified valuators who adhere to published valuation standards set forth by well-known, accredited organizations. Most business valuations use a variety of factors over time to determine the value of your business rather than a single moment in the history of your business. Business valuations usually start around $3,500 and higher based on the different factors of your company such as size, equipment, quality of earnings, future earnings etc.
Although many business owners have a vague idea of what their companies are worth, most are merely guessing – and over time, such guesswork can prove costly. In the worst case, not knowing fair market value could cause owners to sell their businesses for less than the business is actually worth – or for heirs to pay more than their fair share of estate taxes after the owner’s death. For these reasons, the cost of a business valuation can be an excellent investment.