When and why do I need a Business Valuation for my business?

Posted by on Wednesday, December 19th, 2012 at 1:31pm

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 What are some of the reasons for and when do I need to have a Business Valuation performed? 

Business valuations are certainly a necessity when a business owner is considering the sale of their business, but in reality every business should have a current business valuation.  The valuation needs to be on hand at all times and based on current financial documents.  Here are a few reasons why a business owner should have a business valuation performed and updated on an annual basis:

  • Assume for a minute that something happens to you, the business owner, that takes you out of the business and forces the sale of the business.  If you have a current business valuation, your family would have the financial data they need to make an informed decision on how to move forward with the sale or dissolution of the business.
  • Now assume that you receive an opportunity to sell or merge and the principals need a quick decision. If you have an up to date business valuation you will have the ability to take advantage of opportunities like these.
  • You may be thinking about your retirement and need to know the value of your business in order to construct an exit strategy
  • What if you may need to separate from your partners or shareholders.  Before you can start the process, you need to know the value of the business so you can determine how to divide up the business.
  • What if you want to take on a new partner or LLC member, and you need to know the value of your business to determine the buy-in price.  A current business valuation allows you to make these calculations quickly and efficiently..
  • You may think you are growing and need to expand or build new facilities. If you take  a current business valuation to the bank, it will  help the bankers make the decision to lend you money for expansion.
  • And finally, you may be dealing with a divorce or another serious family issue.  Obviously one of the primary discussions or legal points in that process will be the value of the business.

In business and in life, things change.  In fact, it is said that the only constant in business, is change.  A current business valuation cannot stop or slow the rate of change, but it can help you plan for the future, prepare for coming changes, and deal effectively with personal and business emergencies.

These are only a few reasons why it is important to have an updated Business Valuation.  This document is as important, if not more important, than a current business plan.  

 

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