Author: Tanya Titman Date Posted: 21 January 2016
“I’m not planning on selling my business any time soon. So I don’t need to know what it’s worth, right?” Wrong.
“I’m not planning on selling my business any time soon. So I don’t need to know what it’s worth, right?”
If you value your business, you should value your business. Every business owner should have an up-to-date business valuation — not just those preparing to sell.
Put it this way. Do you:
If you answered “Yes” to any of these questions, you should consider getting your business valued.
What’s the value of knowing your business value? Here are eight reasons why you need to know what your business is worth.
1. Planning to grow
Planning to grow your business? What’s your starting point? A business valuation delivers a scientifically calculated business value that’s the perfect benchmark for comparing annual growth. More importantly, the report details areas for improvement and what’s having a negative impact on your business—unstable cash flow, poor systems and procedures, key staff dependence, etc. We can develop strategies to arrest these negative drivers, increase growth and improve business value.
2. Selling your business
Knowing the true value of your business and how to increase earnings before interest and tax (EBIT) is crucial if you’re planning to sell. A business valuation not only provides current market value but also an assessment of your business’ performance in multiple areas. You can use the valuation to set a strategic roadmap of development and improvement for your business. Implementing strategies each year to bridge the value gap will ensure the growth of EBIT and valuation multiples so you reach the required business value by the time you plan to sell.
3. Attracting investment
When opportunities for investment, private equity injection or strategic partnerships arise, decisions need to be made quickly. A business owner who understands the true value of their business can take full advantage of these opportunities. A business valuation report covers your business’ history, legal structure, financial information and a range of other factors. An up-to-date valuation is like your business’ resume for potential investors. It provides a snapshot of your business performance in the current industry climate. If you’re seeking investors, annual valuations are essential.
4. Planning for expansion
For business owners with plans for expansion, an up-to-date business valuation report is a critical tool. It provides an accurate industry benchmark, and can make it easier to obtain funding from lenders and financial organisations. Regular business valuations ensure you can plan strategically and grow at the right time. They also highlight areas that need attention before your business can achieve the desired growth.
5. Approaching retirement
Many business owners put their heart and soul (not to mention their life savings) into their business, with the hope it will one day provide them with a retirement nest egg. If you’re basing your retirement on the eventual sale of your business, you need to be prepared. A business valuation will give you an in-depth understanding of how much your business is worth now. You can then identify how much you need to generate from the sale of your business to retire comfortably. Once you know what the gap is, you can put in place a strategy to increase your business value and ultimately achieve financial freedom.
6. Implementing an exit strategy
Every exit plan should align with the owner’s business and personal goals. The most successful exits from business take considerable planning. Annual business valuations create a ‘starting point’ for the planning process. No matter what exit strategy you choose (IPO, MBO, merger/acquisition, etc.), you need an accurate insight into the value of your share of the business. Regular business valuations will provide a clear picture of your business financial position at all times, and achieve the best possible outcome when it is time to ‘exit’.
7. Future proofing
Personal loss, divorce and legal disputes can sometimes be difficult topics to discuss. But it’s important to have planning and asset protection in place for the future. If something happened to you, would your family be able to keep running the business? If they had to get your estate in order, would they know the value of your business? By implementing regular business valuations you’ll have an up-to-date financial record of your business assets. Similarly, up-to-date records can be beneficial in legal proceedings such as a divorce or an audit investigation with a Government Agency.
8. Insurance cover
When taking out a buy/sell life insurance agreement, business partners purchase life insurance policies on the lives of each co-owner. In the event of a co-owner’s death the other co-owners are paid a lump sum benefit, which is then paid to the deceased's surviving family members. An up-to-date business valuation is vital for this agreement. Insurance companies will ask for it, as your families/estate will be paid according to your share of the business value upon your death.
Just like a medical checkup, business valuations should be conducted regularly as business value can fluctuate depending on market conditions, competition and financial performance. A typical business valuation takes about three weeks, and requires scrutinizing the company’s financial position, management processes and operational structure.
Business valuations cost between $3,000 and $5,000, depending on the complexity of the company involved.
By working through our business valuation process here at Consolid8, clients not only know the real value of their business, but also have a better understanding of their business’ strengths and weaknesses. We identify the key growth factors, and help business owners implement simple but effective strategies that focus on increasing business value.
To get a business valuation report for your company, call us on 1300 222 353 or email email@example.com