There are many reasons people decide that they want to own a business. Some want the feeling of freedom that comes with taking control of their financial situation. Some want the fulfillment of building something from the ground up. Others want to provide a needed service at a reasonable price. Whatever the reason that the business path is chosen, all business endeavors eventually comes down to finances, or in other words, money. With that basic understanding, it would stand to reason that knowing the value of the business would be of top priority for most business owners. Unfortunately, that is rarely the case as most business owners have no idea as to what the true value of their company is. While business valuations are far from an exciting topic, there are many reasons to have an updated business valuation. Here are just a few:
- To establish a baseline value for the business – Without having a baseline, how do you know if the business is progressing as it should be?
- Exit planning – Whether the business has been in business only a few years or for decades, at some point, the idea of exiting the business will come up. Having an exit plan and knowing the value of the business will be invaluable when it does.
- Business funding – In order to continue growing, businesses often need additional funding. While SBA loans require an independent valuation, having an updated value for the business may come in handy.
- Divorce – If an owner of a business is going through a divorce, it is important to know the value of the business for property distribution.
- Disaster planning – In the event of a disaster, having a current valuation will greatly aid in recovery, from insurance claims to establishing the difference of value before and after the disaster.
- Litigation – In the event of a matter requiring litigation, it’s important to understand the financial state of the business.
- Adding a new owner or partner – Without knowing the value of the business, how can the buy-in price be determined?
- Shareholder buy-out – How can the shares be properly valued without a current valuation?
- Setting up an Employee Stock Ownership Plan
- Gifting and estate planning purposes – When gifting shares of a company to family members, knowing the value of the shares is required for estate and gift tax flings, and will help avoid any issues with the IRS.
- Disputes with partners or shareholders – A current value will help with any negotiations that may be necessary to handle internal disputes.
- Bankruptcy – All businesses have difficult times and sometimes it’s necessary to file for bankruptcy protection. Knowing the current value of the business will be necessary in such cases.
- Expecting the unexpected – No one can know what tomorrow may bring. It’s always a good idea to be prepared for anything. When the unexpected occurs, the more prepared one is, the easier it will be to successfully negotiate any obstacles that may come up.
Please let us know if you have any questions or would like to schedule a valuation.