Knowledge is power. There are a number of different reasons to know the value of your business. There are third party companies that will put together a Valuation report. This report gives facts and figures on the actual value or worth of a business in regards to market value, assets value, and income value. It will also identify where the company’s risks are.
One report estimates that upwards of 98% of small business owners don’t know what their businesses are worth. If you are one of them, please read on for reasons why you should change that, whether you are just getting started, preparing to grow, or looking to sell.
Am I doing this right?
Knowing your company’s value is necessary if you are going to protect it properly. There are many insurance considerations to weigh and the report will highlight where risk exists. It is estimated that 70% of small businesses are under-insured and nearly 40% of business owners have no life insurance.
Also, this information will help to determine how much should be reinvested into the company based on how it has performed.
You want a piece of me?
If you are looking to bring on investors, many are going to want to see solid numbers on how the business is doing. A valuation report can give them an idea of what to expect from their investment based on the history of the company and growth potential.
If a loan is in order, these financial numbers will assist in securing money from a bank or lender. Whether your business is two years old or twenty, past performance indicates future results and a valuation report supplies that information.
Preparing for someday
One report estimates that upwards of 98% of small business owners don’t have an accurate idea of what their businesses are worth. When you consider that 78% of them reported that they plan on funding their retirement by selling their business, it begs the question: How can you successfully plan for retirement when the value of your primary asset is unknown?
It is reported that more than 60% of business owners plan to transfer their ownership interests within the next ten years. Many experts suggest getting a valuation report no later than 2-4 years prior to wanting to sell. This will afford the business the opportunity to fix some trouble areas (if there are any) and to really focus on increasing the company’s operational and financial performance. This, no doubt, is why companies that have a valuation done at least 18 months prior to selling get about 14% more for their business than their counterparts that don’t.
When the day comes
A business valuation report is like a snapshot, it shows the value/worth of the the business at the time it was done. A history of reports will show the performance of the company over time and potential future expectations. Once it is time to actually get to selling the business, however, it is time for an updated valuation report. With this information in hand, you can negotiate the best price for your business.