How much is your business worth? The importance of a business valuation.
The demands on a business owner are already onerous and there is very little time left over for working on the business; let alone thinking about what your business is worth. So why bother with a valuation?
Some of the concerns are around the cost of the appraisal, the time involved to do the valuation or because the business owners see no benefit in doing one.
It’s estimated that over 90 percent of business owners don’t know the value of their biggest asset, their business. Majority of business owners don’t see the benefit in getting a business valuation until something happens and then it becomes too late.
My business is my retirement plan
It’s not unusual for business owners to see their business as the way to fund their retirement. But without knowing how much your business is worth how do you know how much you will have to retire on? A valuation provides an indication of how to plan for retirement. This gives a business owner time to build and grow the business if the value is not in line with what the business owner’s expectations.
If the business is a family owned business and is being left to one or some of the children how can you determine what is equal and fair for the other children? A valuation of the business will help the parents determine how much the business is really worth, and can help them decide what estate planning changes may be appropriate.
Key person planning
If you have an employee that you can see taking over the business eventually or buying into the business then a valuation can give you a starting point to provide them with financial incentives. Profit, sales and other annual measures may not reflect the real growth of the business. A valuation can provide a baseline for your business and form part of the financial incentives plan for the key person.
Value of the business is lower than expected
A lot of the time the valuation of the business does not came out at what the business owner expected. Sometimes it can be higher, but more often than not it’s lower than expected. Why is this? Business owners tend to have an inflated view of the value of the business. They have heard about other similar businesses being sold with high multipliers and often they think their business is even better so why can’t they get the same or even better! In reality, every business is different and some need more work than others.
Wake up call
Sometimes a business owners needs a ‘wakeup call’ to refocus on the business rather than in the business. A business valuation allows business owners to have a clear explanation of the value of their business and the evidence to support the result. A valuation offers insights to help a business owner see where to refocus or change course. The data can guide strategic decisions, business development plans, and even assess whether the right people are in place to support long-term goals. During this process the business owner develops a new perspective on their business and sees what they can do to improve the value of the business. Often with some simple steps, the business owner can already start improving the value of their business immediately!
Business owners face enough challenges running and owning a business, so why not be in control of your future and build your business up! Talk to one of our Advisory Specialists today to get started! Complete your details below and we’ll be in touch or give us a call on 03 9835 8200.
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