6 Reasons that Business Owners get Business Valuations
As a business Intermediary, for the past 10 years, I have performed hundreds of Business Valuations. From $ 100,000 pizza shops to $25-Million-dollar manufacturing businesses, it is always an interesting and enlightening process. We believe it to be a very important process for several reasons. Here are 6 reasons to get a Business Valuation.
- If there are partners in the business.
If there are partners in the business there should be a Buy/Sell agreement in place. Usually this agreement will stipulate how often the “Valuation Certificate” needs to be updated. In this case a business valuation will provide an updated “Valuation Certificate”.
- If you are doing Exit or Financial Planning
In order to go through the exit or financial planning process, you should know what your cash proceeds might be “post exit”. A Business Valuation will provide this for you.
- If you are evaluating Intermediaries.
If you are evaluating intermediaries, the business valuation process will give you an idea how your potential representative works and if your firms are compatible. Additionally, you will find out if they are the right “team” to execute your exit strategy.
- If you are doing estate planning.
During the process of estate planning your business will likely be a key part of your estate. Your businesses’ tax consequences and succession need to be part of your estate plan and can be hashed out through a Business Valuation.
- A benchmark for analyzing the effects of future growth.
A Business Valuation will provide you with an insight into your businesses’ future!
- I just want to know!
All six of these are valid reasons. In our practice we run into all these reasons when performing the business valuation service. But in our estimation, the most important reasons are when you are looking to assemble your “Deal Team” (which was discussed in a previous blog) or when you are evaluating an Intermediary (business broker or M & A firm).
Whereas a “Certified Business Valuation” from a business appraiser can cost many thousands of dollars (analogous to having a real estate appraiser appraise a piece of property), what we and most business Intermediary firms offer is an “Opinion of Value” (analogous to a real estate broker doing a “comparative market analysis” of a home).
Depending on the firm, the business valuation process is a good way to “try before you buy” with “try” being a modest fee to a complementary valuation. Additionally, in this situation the “buy” is the signing of a listing agreement with the firm that will bring your company to the market place with the aim toward a “Win-Win” transaction.