25 Situations You’ll Use a Business Valuation In
Business valuations can be used for so much more than selling your company.
As a small business owner, you recognize the importance of staying current with market trends, industry forecasts, and the state of our economy so that you can prepare for anything. Planning ahead is a crucial part of small business ownership and without a long-term plan, any unforeseen circumstance could severely impact your business. Having a plan for your business is much more than just forecasting financials or designing growth strategies – it’s about solidifying an exit strategy for your greatest asset. The first step to coordinating an exit plan is finding out what your business is worth through a professional business valuation. Business valuations are a professional document that lays out the market value of your business based on comparables, trends and the economy. Obtaining a valuation for your business is the first step when planning an exit, but there are several other situations where your valuation can help you.
When working with business owners, we recommend updating your valuation on an annual basis to monitor how your business is doing. Valuations do not just put a sales price on your business; they also show you cashflow, growth trends and EBITDA. But what if you are not ready to sell? You should still get a business valuation and may end up using it in one of these 25 situations.
Valuations do not just help you pave the way to exiting, they can also assist in strategic planning. Every business needs a vision for the future, but how can you figure out where you want to go if you don’t know where you are now? A professional valuation provides a benchmark for growth planning and can also show you the financial status of your business. These are just a few of things a business valuation can be used for when strategic planning.
- Identify weaknesses
- Understanding value
- Preparing for the future
- Revenue, cost & expenses analysis
- Year to year comparisons
- Growth Patterns
- Corporate restructuring
- Compensation plans
Taxes are complicated, especially when you begin to explore exit options. A valuation could be used to ensure that you are complying with tax regulations but also fairly lessening your burden. Once you begin exploring exit options, knowing the value of your business will be critical to these tax implications.
- Estate tax reporting
- Gift tax planning
- Phantom stocks
- Evaluating stock options
- Determine share value of an ESOP
- Shareholder purposes (disputes, investments, value justification)
When we talk about exit strategies, we like to start by explaining that exit solutions are different for every business owner. What’s best for one business, may not be best for you, even if you’re in the same industry! Exit strategies come in all shapes and sizes and whether that means selling the business to a 3rd party buyer or planning for a partner buyout, the first step to making a move is getting a valuation. Before you can strategize next steps or plan for post-sale life, you need to understand how much your business would sell for and if that number will provide a sustainable life for you. Here are a few of the exit strategies that a valuation would help you plan for.
- Partner Buyouts
- Estate Planning
- Setting a baseline to improve value
- To evaluate an offer
- Obtaining Financing
Obtaining a professional valuation can do wonders for business planning, but there are also non-business situations where a valuation can come in handy. There are several situations in life where you may need to prove your net worth or the value of your assets, and a valuation will help with that. Many brokerage firms offer free valuation services, but in situations like the ones below, we recommend paying for the service as it builds legitimacy. Outside of business planning, these are a few instances where you would need a valuation.
- Litigation Purposes
- Obtaining a Loan
No matter what entrepreneurial stage you are in, it’s critical to understand the value of your business for future planning. Having a plan in place for your business (and life!) is an important part of protecting your assets and trying to account for the unforeseen circumstances the best you can. Even if you aren’t thinking of selling for a while, it can only benefit you to find out the true value of your business. Once you understand the value of your business, you can start thinking about what type of exit strategy works best for you and what steps you need to take now to be able to maintain your lifestyles after the sale. It’s will also help you when considering what type of buyer is best for your business or how you can increase the value of your business by making some slight changes now. To learn more about obtaining a professional valuation for any of these purposes and how you can begin planning for your future, contact Viking Mergers & Acquisitions today.