- October 13, 2017
- Posted by: Rivero, Gordimer & Company
- Category: Business Advice
Business valuations are an important process for all business owners. In addition to providing a clear picture of current market value, you can also assess competitors, revenue, and assets during the business valuation process.
Executing a proper business valuation isn’t something that can be done on a whim. In fact, the best valuations are the ones conducted by an independent, third-party CPA firm. If you are looking for a business valuation, you should find an organization with certified public accountants that have years of experience and hundreds of business valuations under their belt. The more qualified and trained your evaluators are, the more accurate your business valuation.
Here are four reasons small business owners may want to consider a business valuation:
Better Understand Your Assets
One of the most important reasons to consider a business valuation is its ability to help you better understand your company’s assets. In order to properly evaluate a business’s financials, a CPA must assess your assets and assign values to them.
Because companies have both tangible and intangible assets, putting a value on an asset can be difficult. Examples of tangible assets include things like: building, land, equipment, and inventory. These types of assets can be fixed, require depreciation, or be labeled as current. Examples of intangible assets include things like: goodwill, patents, trademarks, and copyrights. Because these assets are based on intrinsic value, a CPA will need to conduct market and competitive research to determine their value.
There are many steps and requirements to accurately estimate the value of your business’s assets. However, once you do have an estimate of your company’s assets, you’ll be able to more accurately estimate the short-term and long-term value of your business.
Know Your Company’s Resale Value
If you are planning to sell your business, then you need to have a business valuation. You risk under or overvaluing your business if you don’t know the true resale value of your company.
In addition to knowing your true resale value, you can take steps to increase your short-term value leading up to a sale. A CPA Firm that provides business consulting can shed insight and optimization strategies to help you improve your business’s value preceding a sale.
Knowing what your company is worth months, or even years, ahead of time lets you work to achieve a higher selling price. Knowing your business’s value can also provide validation or motivation depending on your interpretation of the value. Regardless, knowing what your business is worth will only give you more information and analysis to help you make the best strategic decisions for your company’s future.
Helps With Mergers and Acquisitions
Businesses engaged in a merger and acquisition (M&A) will likely need a business valuation to shed light on the company’s current financial stability and long-term growth potential.
Businesses might look at your assets-to-liabilities ratio, historical growth rates, or your inventory turnover to see the viability of your company and its likelihood for long-term success.
As the business owner, it’s important for you to do your due diligence and get a fair market assessment of your business’s value. This will help you during the negotiation process because, as you might expect, corporations seeking to acquire your business will look to pay as little as possible.
Knowing the true value of your business will give you leverage in negotiations, but it also provides comfort and assurance to the purchasing party. At the end of the day, for M&A to work, both companies must be comfortable moving forward. Having an honest and unbias valuation of the company will help achieve that shared objective.
Can Increase Investor Interest
Whether you’re looking to expand your business or save it from financial distress, investors may be a logical solution. Smart investors will go through your business processes and financials with a fine-tooth comb. They’ll likely want a current valuation report in addition to a future projections proposal based on their investment and returns.
Keep in mind, your business is much more likely to gain the attention investors once they can see how their funds will help your company grow. They want their money to take your company to the “next level.” Your business’s value and theirs go hand-in-hand. Having an independent CPA Firm conduct a thorough business valuation will go a long way with attracting and converting investors.