6 Reasons to Get a Business Valuation
It is common for business owners who are selling a business, and those interested in buying a business to ask, “why do I need a business valuation?”
Depending on your goals, and what side of the business transaction you are on, there are a number of reason to get a business valuation.
Below, we outline the six most common reasons to get a business valuation.
1. Transactions
For Business Sellers:
For those selling a business, a business valuation is the starting point for deciding if you want to sell your business, if the timing is right to sell your business, and if the projected sale price of your business will satisfy your financial goals.
A business valuation provides the listing price for your business. And because the listing price is based on accepted valuation techniques, it provides the seller a strong position in the negotiating process.
For Business Buyers:
A business valuation is important for business buyers because it provides crucial information about the value of the business, and the businesses potential to create future income.
A business valuation also provides the buyer will key metrics of the businesses financial performance and history is the buyer is in need of third party financing.
2. Strategic Planning
A business valuation can help you understand where your business stands today and the potential for growth. A valuation gives insight into the strengths and weaknesses of your company, value drivers as well as how a potential buyer will view your business. Additionally, through a business valuation, you can develop strategies to grow your business.
3. Financing
When raising capital an objective valuation is usually needed. Whether you are negotiating with banks, venture capitalists, or other prospective investors, a valuation will help. It increases your credibility with lenders and investors.
4. Exit Strategy Planning
If you are planning on exiting within the next five years, it is a good idea to know the baseline value of your business today. Then you can develop a strategy to increase the value of your business. An up-to-date business valuation can help you plan for an unexpected or expected sale. It can also help ensure you get the fair market value of your company and avoid selling for less than the company is worth.
5. Estate Planning
Having a current business valuation can help you plan for the future. No one wants to leave their heirs with the burden of heavy taxes. By knowing the value of your business you can adequately prepare to fund future estate tax liability. Whether you are planning on selling, gifting, or dissolving your business it is important to have an estate plan in place. This plan can then either pay the taxes or implement strategies to bypass them.
6. Shareholder Buyouts/Disputes and Divorce Settlements
If an owner decides to leave the partnership a business valuation can help the parties arrive at a fair settlement for the ownership interest. A buy/sell agreement between owners can help determine how the buyout will be structured.
In addition, when a marriage breaks down and a business is involved, a business valuation can help the parties reach a fair financial settlement by assigning a fair market value to the business.
Summary
The list above covers the most common reasons to get a business valuation. A business valuation can be useful for both short-term and long-term business planning. In each of these instances, it is important to have your business valued by a credible and experienced business valuator.
At Stonebridge Business Brokers, we provide our customers with accurate and comprehensive business valuation services so you can plan for your future and accomplish your goals.
Contact Us Today for a Free Consultation at: stonebridge@businessbrokerbc.ca
Or visit us on-line at: www.businessbrokerbc.ca
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