Most small business owners will agree that their business itself is the most valuable asset that they own. However, if they need to find out what their business is worth, determining the value of a company isn’t always that simple, and a professional business valuation may be required.
A business valuation is a formal process designed to estimate the total value of a business and is conducted with a combination of science and art. It’s based on a range of factors including the nature of the business, financial performance, asset value, liabilities, economic conditions, and anything else that is unique to the business that might have an effect.
There are several reasons why small business owners might consider getting an estimate for their company’s value. Most commonly, it is carried out in order to sell a company, but it can be a wise idea to have your business appraised on a regular basis to simply give you a clearer idea of what it’s worth so that you can make any future business decisions accordingly.
You might also want to have your business valued if you are going through a divorce and the business is classed as a marital asset, or if you are gifting shares of your business to your children. Either way, you are wise to enlist an experienced professional to evaluate your business and provide you with the most accurate figure. Some benefits of working with a professional to get a valuation for your business include:
You Can Obtain the Most Accurate Value
Whether or not you are planning to sell your business in the immediate future, getting a professional valuation allows you to get a clear idea of what the company is worth and see how it has grown over the years. If you do decide to sell in the future, regular professional valuation figures can certainly make your business more attractive to potential buyers who will not be able to deny the growth when the numbers are right there in front of them.
Knowledge of Company Assets
You may know how much your tangible assets, like equipment, property, and inventory are worth, but can you estimate the value of your intangible assets? Things like brand recognition, trademarks, and patents can be harder to work out the value of, and underestimating or overestimating them can skew the figures if you try to work out what your business is worth. That’s why it’s a wise idea to invest in professional business valuations services like WA Business Valuations. WA Business Valuations will take a wide range of factors into accounts, such as brand recognition, customer loyalty, employee longevity, and more to determine how much each one is worth as an asset to your company and finally combine these values with other assets, liabilities, economic conditions, future growth potential and more to come up with a more accurate figure for your business.
Better Negotiations
If you are considering selling your business, it makes sense to turn to a business valuation service to determine its true worth before you put it on the market. Without an accurate figure for your business, it can be difficult to determine the asking price and you are at risk of either going too high and failing to attract potential buyers or making the mistake of going too low in negotiations and losing out on a lot of money. Armed with the knowledge of what your business is worth, you can ask for a realistic selling price and negotiate accordingly to settle on a price that is fair and realistic based on data provided to you by the valuation firm.
Easier Mergers and Acquisitions
If a larger company is seeking to merge or acquire your company for as little as possible, knowing the true value of your business will help you ensure that you don’t end up losing out. A professional business valuation means that you can show the larger company exactly what the value of your company is as a whole, how it has grown over time, and its potential for future growth. It will be much easier to negotiate with other companies if you have solid value figures in front of you, and you can reject deals that are for less than your company is worth with confidence.
Access More Investors
If you are seeking more funding from investors to boost your company’s future growth or save it from a financial disaster, a professional business valuation can provide you with access to more interested investors. You can use your business valuation to provide any potential investors with a projection of valuation made up of solid figures and data rather than talking in vague terms about potential figures. Regular valuations can also make your company more attractive to investors as it allows them to see exactly how the business has grown over time.
Better Business Decisions
Even if you are not planning to sell your business right now, there are several reasons to get a professional business valuation. One of the main advantages is that it will allow you to make better decisions for your business in the future. Whether you’re looking to borrow more money to fund growth or want to attract an investor, or simply want to figure out which areas of your business are adding the least value and can be focused on for improvement, a professional business valuation will help. For example, when evaluating your company, the appraiser may find that your customers are not very loyal and therefore this aspect is not adding much value to the total worth. As a result, you will be able to single out this intangible asset to focus on and invest more in improving customer loyalty in the future, improving the value of your business overall.
What to Look For
There’s no denying the many advantages of investing in professional valuation for your business, whether or not you are planning to sell in the near future. However, it’s important to bear in mind that the field of business valuation has grown quite substantially in the past few years and as a result, there are several professionals to choose from who are not all created equally. It’s important to do your research and ask questions before settling on a business valuation firm that you can trust. Some key factors to keep in mind include:
- Cost: The costs of getting your business valued can vary a lot, so be sure to ask for an estimate of costs for your specific project during the initial consultation. A verbal appraisal may be more cost-effective compared to a written report, and this can be ideal if you simply want the valuation for informational purposes rather than to attract an investor or sell up.
- Certifications: Professional business appraisers come from a range of backgrounds and there are various certifications available in this field. Some of the best certifications to look out for include:
- CBA (Certified Business Appraiser)
- ABV (Accredited in Business Valuation)
- AVA (Accredited Valuation Analyst)
- ASA (Accredited Senior Appraiser)
- CVA (Certified Valuation Analyst)
- Timeframe: Finally, consider how long you can expect to wait before getting your valuation. Bear in mind that this can be a lengthy process and anybody offering a quick result is usually a red flag.
There are several benefits to knowing the value of your business, whether you want to sell it, attract an investor, or simply make more informed future business decisions.
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