Preparing for a potential sale isn’t the only reason to obtain a business valuation. In fact, it is but one of several reasons. We are often asked “Do I need a valuation?” or “Why do I need a valuation?” The answer is – it depends on what you are trying to accomplish with the valuation. Below we will discuss various scenarios in which a business valuation may be needed and in some cases may even be crucial to accomplishing your business goals.
A business valuation can help you understand where your business stands today and the potential for growth. A valuation gives insight into the strengths and weaknesses of your company, value drivers, and how a potential buyer will view your business. Through a business valuation, you can develop strategies to grow your business.
Sellers and buyers of businesses usually have different opinions on the value of a business. A valuation can help determine whether the selling price is reasonable.
When raising capital an objective valuation is usually needed. Whether you are negotiating with banks, venture capitalists or other prospective investors, a valuation will help. It increases your credibility with lenders and investors.
If you are planning on exiting within the next five years, it is a good idea to know the baseline value of your business today. Then you can develop a strategy to increase the value of your business. An up-to-date business valuation can help you plan for the unexpected and expected sale. It can also help ensure you get the fair market value of your company and avoid selling for less than the company is worth.
Having a current business valuation can help you plan for the future. No one wants to leave their heirs with a burden of heavy taxes. By knowing the value of your business you can adequately prepare to fund future estate tax liability. Whether you are planning on selling, gifting or dissolving your business it is important to have an estate plan in place. This plan can then either pay the taxes or implement strategies to bypass them.
Shareholder or Partnership Buyouts/Disputes:
If an owner decides to leave the partnership a business valuation can help the parties arrive at a fair settlement for the ownership interest. A buy/sell agreement between owners can help determine how the buyout will be structured. Some states allow businesses to merge, dissolve or restructure without unanimous consent among the owners. This may result in a dispute that requires a valuation as part of the settlement process.
This is but a partial list of potential reasons to have your business valued. A business valuation can be useful for both short-term and long-term business planning. In each of these instances, it is important to have your business valued by a credible valuation professional.