As a business owner, the value of your company is more than just a number. Yet, it is essential to understand that number to make informed decisions for the future of your business. Business valuations help measure the value of a company using financial principles. It is useful in determining the fair market price for a sale, or to identify areas for performance improvement.
So, when should you get your business valued? Generally, you should consider getting a business valuation when it’s time to make important decisions involving the value of the business. Some instances include:
Selling or merging your business: If you’re considering a merger or acquisition, a business valuation can give a clearer picture of your company’s assets, liabilities, and growth potential. This is particularly useful for demonstrating the value of your business during negotiations with buyers and setting reasonable pricing expectations when reviewing offers.
Raising capital: For those seeking to finance their company through equity investments or lending, a financial valuation is key. A business valuation can provide investors or lenders with the financial information they need to make a decision concerning investing in your business. A valuation can also help business owners decide the appropriate equity amount to offer in exchange for an investment.
Changes in ownership: In circumstances where ownership changes within a business i.e. by the removal or introduction of new business partners/shareholders, a business valuation may be useful in order to determine the appropriate price for any ownership interests to be bought or sold.
Succession, Estate and Tax Planning: Business valuations are crucial to succession and estate planning. I It allows business owners to determine fair transfers of assets to intended successors- ensuring a smooth transition of ownership. It also ensures that assets are accurately valued and gives an opportunity for the business to be restructured in the most beneficial way for tax purposes.
Significant changes in family situations: Where there are significant changes in the family such as a marital divorce, a business valuation is a useful tool to ensure fair proceedings in settlement negotiations and protect personal finances.
Whether you are selling your business, looking to raise money, or simply assessing performance, a business valuation can provide useful insights into the worth of your company.
For business owners seeking professional assistance with business valuations, seeking out an M&A firm may be the appropriate option. Our team at Portage M&A can help you understand how much your business is worth. We also offer a value enhancement program to evaluate the factors affecting the value of your firm and how to build and improve on them.
Laryssa Rollo, CPA, CA, CBV
Senior Manager | Portage M&A Advisory