Why is Knowing the Value of Your Business Important?

Do you know what your business is worth? Not the back-of-the-envelope guesstimate, but an independent appraisal of your company and what you could potentially receive if you decided to sell? If your answer is no, you’re not alone. In fact, a recent report shows that as many as 98 percent of business owners don’t know the value of their company.[1] If you value your business, you should know the value of your business. Every business owner should have an up-to-date business valuation — no matter your current circumstances.

Here are the top four reasons why you need to know what your business is worth.

    1. Get a fair market value for the business if you ever choose to sell it.
      This is perhaps one of the most important reasons that a business owner should know the true value of their business. Many small business owners rely on the sale of their business to fund their retirement or other future business opportunities. We have seen and heard many horror stories involving business owners selling their businesses for well under fair market value, or not find a buyer because the business was listed for too high a price. While hiring an accountant or valuation analyst today to appraise a business can be costly, it could save you thousands of dollars in the long term. You don’t want to miss out on those profits. Plus, if you know the value of the business prior to putting it on the market, you can plan the best time for it to go up for sale and have greater negotiating power.
    2. Obtain additional financing.
      If your company wants to receive financing to fund growth or save it from disaster, you’ll likely be seeking out a commercial lender. A lender will likely require a 3rd party business appraisal to be obtained to understand the value and financial health of the business. A business valuation can help you present a better package to a lender, making it easier to get the financing you need for your business.
    3. Create a growth plan.
      All business owners, in one way or another, want to see their business grow. However, many business owners have no real plan in place for how they can do this effectively. Knowing the business’s true value would be the best place to start for laying the groundwork in creating a growth plan. Any reliable valuation report should include details that can help focus the business owner’s growth efforts and will help you make better decisions to grow your business in the future.
    4. Support estate planning.
      Receiving a business valuation in support of estate planning allows you to understand the value of the assets that you hold and plan to transition to others. This allows you to divide your interests properly and ensures that no one gets less than their fair share according to your wishes. Secondly, and perhaps more importantly, valuing a business for estate planning and gift purposes allows you to understand the tax liabilities that would apply to your transfer. This ensures that you have a clear picture of the assets that would be received by your inheritors after the deduction of taxes.

Whether it is to ensure the owner gets a fair market price if they choose to sell, obtaining additional financing, or planning for the future, one thing is for sure – knowing the value of your business will help in driving growth into the future. Valzy is a quick and easy business valuation application that can help you get a sense of what your business may be worth. Ensure no money is left on the table during a sale, obtain financing faster and make better decisions for your business by getting a business valuation today.

[1] IBIS World, “Business Valuation Firms in the U.S.”, 2014