Quite simply, business valuation is a process and a set of procedures used to determine what a business is worth. While this sounds easy enough, getting your business valuation done right takes preparation, training and thoughts.
The majority of business owners don’t know the true value of their companies, often adding sentimental values, high intangible values, and not realistic asset and market values. Therefore this doesn’t reflect the true value of the business.
There are four main reasons, why conducting a business valuation is important:
• Buying or selling a business
• Rising equity capital
• Creation of internal market of shares
• Motivation of management and taking strategic decision
If your business is in the startup phase, or in an expansion phase, having a business valuation performed in the first five years of your business, and perhaps every two-to-three years thereafter, can give owners realistic expectations on the value of the business. It gives them the ability to create a practical timeline for the potential sale of the business and other exit strategies. It also provides information to shareholders regarding their position in the company, and whether to consider the sale of their ownership, buying new shares, going for a partnership or potential consideration in investing in a new business venture.
Having a reliable report about how much your business is worth assists the management on taking realistic and strategic decisions regarding their budget expenditures, and its effect on profitability, therefore taking under consideration the cost reductions and business. Having a number also relates to how you value yourself as an entrepreneur. Are you growing something that just makes money along the way but can’t be transferred to someone else eventually? Or can you make changes so it is profitable enough so that you’ll sell it someday and get that pot of gold that could fund your retirement?
Whatever your motive is, it’s time to ask yourself the single most important question about any commercial entity: What is your company’s economic value, how much it is worth in cash?
Do you want to get started? Feel free to contact us at SEEUTechPark and start a dialogue.