Most business owners wait until they are forced to monetarily value their business – the need to sell or raise capital; a shareholder demands a full payout; or the company is passing hands within the family.
But there are benefits to obtaining valuation prior to a sudden need:
- Sudden death of a partner, death of the owners or a messy divorce are all reasons to have a valuation in place NOW, not when confronted with a crisis.
According to Cameron Cook, managing director of Business Valuations, “it’s a good idea to have valuation knowledge up front, rather than all of a sudden needing to scramble to get an idea of value.”
- Laying the ground work for retirement. Ideally, you should obtain a valuation a few years before entering the exit mode. A full valuation will help you understand your options.
- Benchmarking growth. Even if a valuation is not mandated in corporate paperwork, it allows management and owners to “keep track of the value of the business and the assets they own,” according to Cook.
- Making the most of a hard time. Business owners need to know how shifts in markets will affect their business. How will the coal market affect the manufacturing of mining shovels? This is important because a down market can make gift equity a good thing to reduce gift taxes.
- Revealing weaknesses. “A valuation is all about looking at a company’s performance and risk,” said Cook. By understanding future performance and risk, a company can develop a plan to avoid weaknesses.
- Getting a realistic idea. Every company is different and what may increase value for one maybe a risk to value for another.
A valuation can help a business owners to get a realistic idea of the company’s worth, its weaknesses, and help figure out well ahead of time a realistic multiple to search for. Contact Sunbelt Business Brokers – Midwest for more information.
Cameron Cook was interviewed by Megan Daniels for portions of this blog.
