Should I Have My Business Valued?

  • Date07 February, 2018
  • Location USA

What’s so important about having a valuation of my company?

Small business owners spend most of their time IN THEIR business and not ON THEIR business. Further, they view expending money on getting a professional valuation performed as a completely unnecessary expenditure, particularly if they have no immediate expectation of exiting their business.

Consider the following reasons an “estimate” of value may be a wise investment of time and money.

1) Sets a starting point and can remove unrealistic expectations of company value.

2) Will provide important feedback on industry multiples and how your company compares to its peers.

3) May tell you where you are in the industry cycle. Owners need to prepare so if they need to exit perhaps it can be at a cycle high instead of a cycle low.

4) A valuator can provide important insight into value drivers that will help you build value for a future exit.

5) If you have an operating agreement it will test how well that agreement measures up to owner objectives.

Additional thoughts:

An estimate of value is not the same as a full “conclusion” of value report. This will save substantial money and give you enough information to provide a good starting point for the value of your company.

An estimate of value will help each business owner in the decision making process with the three universal primary exit objectives:

1) What date do you wish to exit the business?

2) How much money do you need post sale to ensure a comfortable post-sale life style.

3) Who do you plan to sell or transfer your business to and does that party have the financial resources to pay the amount you believe the company to be worth!!!

The statistics tell us that many small to mid-sized businesses fail to sell for simple lack of planning and foresight on the part of owners who have poured their life’s work into their business but fail to plan for how they will exit.

Do you think a sophisticated buyer will acquire your business without first determining its worth?

An estimate of value at the beginning of the planning stages helps you focus your attention on building value and moving towards a target finish line. Don’t let the initial costs of obtaining an accurate estimate of value stop you. Your eventual exit from the business will likely be the largest, single most important financial transaction of your life.

Does it make sense to go into that transaction without an objective estimate of your company’s value?

By Chris King (1966-2020). For inquiries involving Chris King and this article, please contact Peter Karutz.

The statements or comments contained within this article are based on the author’s own knowledge and experience and do not necessarily represent those of the firm, other partners, our clients, or other business partners.