16 May 2023
A business valuation will help you to determine the market value of your business. Knowing an accurate value for your business will not only impact your current financial well-being, but it can also influence your potential exit strategy later down the line. So, how do you go about valuing your business?
A business valuation is a process (and set of procedures) used to estimate the value and economic growth of your business. To cut a long story short, it’s the process of assessing the total economic value of the business and its assets. So, why is it important to get regular business evaluations?
Arranging the regular valuation of a company is essential for business succession and future planning. Having an up-to-date valuation will affect your business strategy, enabling you to potentially secure investment, level up your business, acquire new companies/merge, as well as showcase any areas you need to develop or highlight potential cashflow problems.
It’s probably best to get an independent/external person to value your business, as this way you’ll be avoiding any potential biases you may get from someone who is involved or has a stake in your business. As much as you want your business to be worth lots of money, if someone inaccurately values your business too high, it will only cause problems later down the line. Alternatively, you could also end up under-valuing your business, if you’re too conscious of potential bias skewing your valuation.
Business valuation professionals will also be able to identify any operational inefficiencies, potentially highlighting soon-to-be issues with your business and your cashflow.
Having regular appraisals at regular intervals (especially for growing and mid-sized businesses) is incredibly important to ensure you have an accurate understanding of the value of your business. Just because you have your business valued once, does not mean that is the final value of your business. The market is always changing, therefore the value of your business will change too!
Everything within your business will have an impact on its value; from employees to assets, to leftover stock. This will ultimately always fluctuate, so by regularly re-valuing your business, you can ensure you have an accurate understanding of how much it is worth.
What are transaction trigger events? These are basically any events or things that happen that would drastically affect your business and cause a shift in its future. For example, a shareholder/employee quits or is fired, a shareholder wishes to sell stock, or even the company goes bankrupt. Having a business valuation prior to these events will help you take the next steps, giving you a plan of action, and allowing you to understand how to handle the situation.
