Dear Dan: We’ve been slowly building our business for almost six years now. I think it’s worth something, but I’m not really sure how to value it. I’m not expecting to sell anytime soon, but is it still important to get a business valuation? – Unvalued
Dear Unvalued: Since business valuations are not required for non-publicly traded companies, most small and family-owned businesses have never had one done. Many business owners, family members and CEOs have no idea what their companies are really worth.
Those who think they know are probably wrong. Professional appraisers say that owners err on both ends of the spectrum: Some fail to include intangible assets and undervalue the business. Others think their businesses are worth much more than the market dictates.
“Even if your company isn’t required to have a valuation, it is still important to the future of the business to know what it’s worth,” says Donna Walker, a past president of the American Society of Appraisers and principal with Columbia Financial Advisors in Portland, Ore.
Business owners often bring in an appraiser to prepare for a purchase, a merger or an employee stock ownership plan. Or a valuation might be needed for estate and gift tax returns, buy-sell agreements, litigation, tax challenges, divorce or many other purposes.
Here are four more reasons to perform a business valuation:
1. To understand where your business fits in the industry landscape. A valuation will also tell you the market price or value of similar businesses recently sold or publicly traded.
2. To gain more insight into your “real-world” financial condition.
3. To make fast decisions on expansion, financing, sale or merger opportunities.
4. To make smart choices to enhance the value of your business. A valuation will highlight the things that make a business valuable and show how you can increase your company’s value.
Selecting a business valuation expert is not easy. The American Society of Appraisers (www.appraisers.org) can provide a breakdown of business valuation credentials and help you find an appraiser.
The National Association of Certified Valuation Analysts (www.nacva.com) also offers a free service online to help you find a valuation expert.
Low-cost business valuation software can help you calculate a rough approximation on your own. Choices include Express Business Valuation (available at www.mbaware.com) and Corporate Valuation (at www.moneysoft.com).
Daniel Kehrer can be reached at editor@business.com.
