- Recent surveys of small-business owners revealed that few knew the value of their business.
- It is crucial to understand the dollar value of a company to access capital and conduct a sale.
- Independent auditors should be hired to value entrepreneurs’ businesses at least once every two years.
Small business owners often don’t know how much their company is worth. This can lead to a risky business.
M&T Bank polled 98% of small business owners over the past two years and found that they didn’t know their company’s value. This is particularly concerning, as most business owners consider their company their most valuable asset.
People who consider their home their main asset need to know its value. You want to know your brokerage account’s value before opening it. Travis W. Harms is the head of Mercer Capital’s family business advisory group. He said you wouldn’t trust a financial advisor who tells you to give your money while they invest it and never report back to you about its value.
Five points help entrepreneurs understand how important it is to value a business.
Valuation is crucial to the success of a business and its sale.
Some don’t want the money, while others don’t know the value of an objective third-party assessment of their company’s worth.
Robert King, a Crewe investment banking team partner, stated that these include an impending sale or the issuance of stock options.
For example, let’s say you wish to give shares of company stock to a relative. Understanding the company’s value for tax planning and estate planning is crucial. The business valuation can also ensure that all partners are on the same page. There may be disagreements about how a business should be valued to separate even if it has a buy-sell agreement. Harms stated that the business’s realistic expectations can help avoid a long and complicated dispute over value if owners decide to split.
It is essential to know the current value of your business. According to Brett Dearing, partner at Verity Partners and an exit planning specialist, many owners don’t want to sell their business until someone offers them a deal. You’ll be at a disadvantage in negotiations if you don’t have an up-to-date valuation.
Certified experts are available to help you value your business.
One of these credentialing bodies is a great way to find an expert to evaluate your business.
The American Institute of Certified Public Accountants grants the Accredited in Business Valuation credential to qualified CPAs and valuation professionals who meet specific requirements. The Certified Valuation Analyst designation is also provided by the National Association of Certified Valuators and Analysts.
Although certification doesn’t guarantee quality, it can be a good starting point, given the expertise required by these designations, experts in business valuation said.
Calculating a valuation can be expensive.
Harms stated that there is no one answer to the cost question because it depends on the complexity and size of the business, the scope of work needed, and the intended purpose of the valuation.
Be clear with your appraiser to ensure you get the valuation you want.
King said that some assumptions used in a valuation to determine the value of an estate plan or issue equity compensation may differ from those used for capital raising or selling a business. King said that “one size does not fit all.”
This asset value should be updated regularly by business owners.
It can be done annually or every few months, depending on the valuation’s purpose.
You can do it more often if you want to grow your business. M&T Bank provides a digital platform for companies to simulate how different outcomes might impact their valuation. Although it is not accredited, the service provides a baseline to help you make your next move, According to Jonathan Kolozsvary (director of new ventures, M&T Bank).