If you’re a business owner, you’re likely seeking to ensure that you are on a path to grow your business. However, in order to effectively make the most strategic decisions, you’ll want a firm understanding of what supports and drives the worth of your business. That’s why so many business owners seek out a valuation from a brokerage professional. Without a valuation, you run the risk of making decisions without important knowledge under your belt. Or, worse yet, you may develop a bias about what your business is worth and make key decisions based on inaccurate assumptions.

When Do Business Owners Require a Valuation?

Often individuals are compelled to immediately get valuations to resolve tax issues. Or they end up needing a valuation due to unexpected legal issues popping up due to occurrences like death or divorce. There are also many other reasons why a valuation may become suddenly necessary, such as gifting or donating stock as a charitable contribution, disputes among shareholders, or even corporate restructuring. Valuations also come into plan during applying for SBA loans or raising capital.

How is The Valuation Number Decided Upon?

A valuation can help business owners understand value in the market, and it can help owners see opportunities and plan for growth or transition. A valuation is a complex understanding of a variety of aspects. The professional who handles the valuation analyzes financial statements and looks at comparable business. They also look at quantitative information and the industry overall. Once this information is compiled, they adjust the business to an industry standard.

There are so many criteria that your brokerage professional will consider in order to come to the most accurate conclusions. First, the objective is taken into account. He or she will also consider the history of your business and the current situation as far as the politics, economy, and location. Even customer relationships and compensation are factored into the equation.

Of course, the brokerage professional who performs your valuation will also think about your assets and working capital. Other aspects that could weigh heavily on the outcome of your valuation include goodwill, market position and the scope of your customers or clients. The type of company and the market position are also essential to consider.

A business valuation is critical to any business owner and can help business owners in many ways ranging from strategic growth to long-term decisions.  It usually represents a large portion of the owner’s net worth and determines his or her path after retirement. The fact is that valuations typically lead to more business growth and corresponding higher prices for the eventual sale.


Michael J Schwantes is President & CEO of Creative Business Services/CBS-Global.

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