What’s your business worth? That’s a potentially important question for many reasons, not just selling. But most owners have only a vague idea of what their business would really be worth. And most of those who think they know are probably wrong.
Professional appraisers who regularly conduct business valuations say that owners err on both ends of the spectrum. Some fail to include intangible assets in their estimate and tend to undervalue what they’ve built over time. Others think their businesses are worth much more than the market would dictate. And of course, sentiment often interferes with good business judgment.
In many cases, owners don’t consider this a top priority. But there are many reasons why you should have at least an idea of what it’s worth (I list four of these below).
The value of a business is normally defined as its fair-market value, or the price at which a property would change hands between a willing buyer and a willing seller who are both informed and under no compulsion to act. Minority valuations assess just a percentage of the value of the firm and apply discounts for the minority owner’s lack of control and possible lack of marketability of the business.
An objective and independent valuation gives you a much clearer picture of where you’re going.
Here are four more reasons to perform a business valuation:
• To understand where your business fits in the industry landscape. A business valuation will describe precisely where you fit in your industry or specialized market, including the market price or value of similar businesses recently sold or publicly traded.
• To gain more insight into your “real world” financial condition. As a business owner, you probably have profit and loss statements and other financial reports to give you a picture of your financial health. But a valuation that includes intangible assets can expand on, confirm or deny existing beliefs.
• Make fast decisions on expansion, financing, sale or merger opportunities. When opportunities knock, you might not have time to conduct a business valuation. Having a current valuation in hand will let you pursue opportunities as they arise.