Making appropriate business decisions is often dependent on the information at your disposal. This reality explains why some businesses spend thousands of dollars every year investing in data analytics and management software. While most business owners will agree that quality information contributes to effective decision making, few are taking advantage of information provided through an annual business valuation.
Many businesses never receive a professional valuation unless they are part of a merger or acquisition. However, an annual business valuation can be an import process for businesses looking to grow, preceding a negotiation or partnership, or companies simply looking to benchmark or track their progress.
An annual business valuation is a service conducted by experienced CPAs, providing an overview of your company’s asset values, income values, and marketplace competition. Publicly traded companies or ones with private investors can use annual business valuations to demonstrate year-over-year growth.
With the help of a local CPA firm, an annual business valuation can provide your organization with many benefits — including the five below.
Improves Decision Making from Accurate Financial Data
Estimating revenue, expenses, and profitability can be incredibly risky for businesses. Not only are these numbers ambiguous, but they provide little insight into the business.
However, a professional business valuation gives decision makers accurate numbers and a realistic view of the company’s financial health. There is no denying that concrete numbers are better than estimates — and, business owners can use that information to make strategic changes.
Taking advantage of an annual business valuation will provide you with the pertinent information needed to make important business decisions.
Provides Owners with the Business’ Market Value
How can you arrive at a price for your business if you don’t know the market value? Simply put, you can’t. If you are looking to sell your business, you need to know what your business is actually worth to avoid undervaluing or overvaluing your company.
Even if you are not currently planning to sell your business, it never hurts to have an idea of what it would be worth in the marketplace. Knowing your company’s resale value can give you a little bit more leverage in business dealings, and also provide a growth trajectory to help you plan for the future.
A business valuation will provide you with an accurate estimate of your company’s value in the current market. This is a requirement for mergers and acquisition, while also being a great way to strategize for future business succession planning.
Gives Stakeholders More Assurance
Whether you are an investor, owner, manager, or employee, you want to know the financial health of the company with which you have a stake. Annual business valuations provide the information needed to give assurance to your organization’s stakeholders.
Investors will have difficulty trusting their money to a company that doesn’t provide them with information showing where their investments are being used. Moreover, businesses can use information about the financial stability and forecast to increase stakeholders’ commitment to the organization.
By using an annual business valuation, you can run a more transparent company which will give your stakeholders more assurance.
Helps with Risk Assessment
Risk management is a common topic for businesses large and small. While no two businesses are the same, generally speaking, business owners want to make decisions that mitigate risk.
Conducting an annual business valuation will provide you with important information associated with mitigating risks. You’ll have more clarity of your long-term, depreciating assets. You’ll know your solvency ratio to determine whether you can afford to take on more debt. Most business risks are tied to financials, and without a proper valuation, it can be difficult to determine the accuracy of some financial areas.
Business owners can use an annual valuation to determine how risk adverse they should operate moving forward.
Provides Insight for Non-Business Events
While most of the benefits of business valuations are rooted in their ability to improve business operations and decision making, it is also important for owners for reasons outside the office.
Whether you are considering business succession, going through a divorce, or estate planning, a business valuation may be required. These critical life events require proper valuation of your assets — and, as a business owner, your business is an asset.
Conducting a frequent business valuation will give you more clarity as to the value of your business, which can be one of the most important assets in your life.
Schedule a Business Valuation Today
An annual business valuation is an essential yearly benchmark for any successful business. If you haven’t had one in over 12 months, now’s the time to schedule one. Contact the Valuation & Advisory team at Rivero, Gordimer & Company today to set up your business valuation!