Pragmatically, any diligent business owner operating with a sensible judgement will want to know the current value of their business.
However-either through sheer laxity or plain ignorance-the majority of business owners tend to drop this assignment to the very bottom of their to-do lists.
Reflecting back to yesterday’s blog post where we defined how the Covid-19 whirlwind swept through and triggered unique questions regarding the true value of businesses, this raises the need to maintain a business valuation at all times.
To gain a more accurate understanding of the company you have built, we strongly recommend having an updated business valuation on hand. Just as a current business plan opens doors of stronger opportunities while ensuring future growth, valuation provides the business owner with multiple facts and figures regarding the actual worth or value of the company in terms of market competition, asset values, and income values.
Maybe you feel that undertaking this additional task is unnecessary until you decide to pursue other avenues-such as seeking out investment selling your company-however, with never ending developments in the business world, knowing the current value of your business ensures that you are always one step ahead.
Things happen; this is just as true in business as in overall life.
- Maybe an accident happens to you one morning and you find that you are no longer able to perform your job
- Or maybe you want to take an advantage of a new opportunity- like embarking on a joint venture
Whichever the reason may be, having an updated business valuation keeps your business on track. Listed below are overlooked reasons to have an updated business valuation
- Setting an initial basis of value: A basic yet vital motive, formally establishing a foundation of worth authenticates any personal perceptions on the business. Thus, in the event of an unexpected occurrence, or decision to embark on an enterprise venture, you can ensure a realistic approach.
- Devastating event: As mentioned above, life can surprise you in many ways. Whether something happens to you personally (death, disability, divorce, etc.) or an outside circumstance ruffles your business operations, expect the unexpected.
- Identify weaknesses in the business: Moving forward with a business valuation, understand the end result may not be near what you expect. However, when presented with factual information determining business shortcomings, you can strategically pivot your models to get to the value you want.
- Adding a new partner/partner wants to leave: A common occurrence in the world of business, an existing partner may want to suddenly leave, or an interested individual may request to join. Here, you will need the valuation to determine a buy-in or the buy-out price.
- Exiting strategy: Whether you feel that your time in the business is over or another situation pulls you in another direction, getting a business valuation is one of the first steps in creating your exit strategy.
- Gift tax planning purposes: Whether you want to transfer an interest to a family member, donate to a charity, etc., transfers will determine what these gifts are worth and help you stand up to any IRS challenge upon appraisal.
- Valuing stock options: Also generally self explanatory, having your business valuated ensures that you comply with regulatory standards when initiating stock.
- For litigation support purposes: With an established value set on your business, you can better determine any economic damages and lost profits. Furthermore, in the unlikely event of fraudulent activity, you increase your chances of uncovering it.
- Business disaster(force majeure events): In the event of a business disaster, it is already too late to do a valuation. However, having a valuation pre-disaster helps with insurance processes to get you right back on track!
- To identify if your business is growing or not: While your business may be constantly busy, a busy attribute does not necessary equate to growth. To gain a better perspective, valuing your business will determine the need to restructure or not. Furthermore, with a clearer understanding, you can better communicate to your team of any approaching or current changes.
Using a business appraiser to value your business
An appraiser utilizes their distinct expertise in setting a value on a property or other assets, including the assets of a business.
An appraiser is an independent disinterested person who has specialized training and certifications. and uses specific standards to value business property. Appraisers use financial analysis ratios, physical review and inspection, and industry comparisons.
How Financial Statements Are Adjusted For a Business Valuation
Before a business valuation report is prepared, the company’s financial statements are adjusted, to remove discretionary items and one-time occurrences, and to bring accounts to current market value. Preparation-as necessary as it is-requires meticulous attention and levels of accuracy. Ensure perfection from the start with a trusted source in your corner.
Here at MCDA CCG, INC.-located in Placentia, Orange County California- our experts bring a high quality standard in our attention to detail and service. Whether you need help adjusting your financials, getting in touch with a reputable appraiser, etc., our years of demonstrated experience will deliver accurate results in a time efficient manner. If you’re on the fence about appraising your business, contact our team today for a complementary phone consultation!