Do you truly know the value of your business? Quite often businesspeople assume that this information would only be necessary if they were seeking to sell their business in the near future. The truth is that whether you’re deciding on an exit plan or seeking to achieve a wide variety of goals with your business, you’ll want to know the fair market value of your business.
Fair Value vs. Fair Market Value
These two terms are often confused, but there is actually a difference. “Fair market value” refers to what your business would sell for in a fair marketplace. This implies that the seller is not under any stress to sell right away. Similarly, fair market value assumes that there is no pressure on the buyer to buy immediately.
In contrast, “fair value” is the price of a transactions outside of a situation where it is on the market. As a result, you’ll often hear people referring to “fair value” during legal situations such as shareholder disputes, divorces, or internal share transfers.
Different Uses for the Valuation
Whether you are planning to handle capital gains, onboard a new partner or raise investment capital, knowing the true value of your business is imperative. Business owners also regularly opt for valuation services when they establish or update employee stock ownership. These reasons are just a few of the many situations where a business valuation would be necessary. You might even be missing out on tax saving strategies when you don’t know the fair market value of your business.
Let’s take a closer look at why so many business owners seek out business valuation services:
If you are estimating your assets, you really can’t make the most informed decisions without knowing their true value. For example, how can you receive accurate insurance coverage without knowing the real value or your assets? This information will also help you effectively negotiate with buyers.
Figuring Out Resale Value
Even if you don’t plan to sell for decade, when you know your business’ resale value, it will benefit you in the here and now. One of the things you will find out during the valuation is the strengths and weaknesses of your business. Once you have this objective input from a brokerage professional, you can figure out how to grow your business in ways that will increase the worth of your business.
If you ever plan to acquire investors, it should come as no surprise that they will want a valuation report.
Everyone is looking for the edge at the negotiation table. If you ever receive an offer, the potential buyer will be looking for an accurate idea of your company’s value. They will also want to know your past growth and projected success. Those who lack these insights might accidentally sell their business for less than it’s worth.
Investors or potential buyers will look for consistent growth. This is one reason why it makes sense to get sporadic valuations. When buyers see growth, they also see the potential for future success.
When you’re seeking the fair market value of your business, you’ll want a qualified business brokerage professional to help you. This individual should have years of experience working in this capacity. This avoids inaccuracies that could cost you down the line.
Michael J Schwantes is President & CEO of Creative Business Services/CBS-Global.
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