Business Valuation 101: Why Do I Need to Know the Value of My Business?

You are not considering selling your business soon. Fortunately, you are not going through a divorce, and no one has died. So why would you need to pay to find out the value of your business? Some of the many reasons business owners choose to investigate the true value of their business extend far beyond the reasons listed above.

 

Exploring the financial worth of your company can help your company respond to other parties’ interests, it can help your leadership team make important decisions about the growth of the firm, and it can provide context for succession planning and establishing bonus and compensation structures for key employees and managers.

 

In some cases, the valuation results can be expressed in the form of a formal report. In others, support and calculations can be provided in abbreviated formats resulting in a less costly alternative.

 

The Usual

Reasons most professionals expect business valuations to be conducted typically revolve around communicating the value of the business to an outside party.

 

Transactions.

Owners often look to the valuation to confirm the value of the Company in a proposed sale or transfer. Often the report is intended to clarify their own opinion of value and sometimes to convince a buyer of the value. These objectives often include:

 

 

Litigation.

 

Financing.

 

Other common reasons for valuing a business include:

The Unexpected

In evaluation of the need for a valuation, it is important to consider the valuation process and not just the resulting conclusion. Valuation is an art as opposed to a science. The conclusion is an estimate of value with merit only to the extent that one understands the process and assumptions upon which it was derived.

 

Understanding the process unlocks the ability to understand the business model in place and to adjust the characteristics in a way to provide the necessary insights to maximize opportunity and to limit potential risks in the application of a company’s resources.

 

A business valuation can present you with a perspective on your business that takes strategic planning to a new level:

 

 

To learn more about how a business valuation can help your business reach the next level, contact Cray Kaiser today. Click here to read more blogs from our Business Valuation 101 series.

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