When you're in business, you know that a business valuation can be a great tool for improving your company. But under what circumstances should you get an updated business valuation? Here are ten of the most common reasons to get a business appraisal.
10 reasons for getting a business valuation
- Transitioning business to family members: Passing your business to the next generation is a great way to maintain a legacy, but you still need to get a fair price for your equity. A business valuation assures that you have documentation of the company's value.
- Selling a business to a third party: When you're selling your business to an outside party, you want to ensure you get what it's worth. Having a quality business appraisal helps ensure you're not leaving money on the negotiating table.
- Buying out an exiting shareholder: When one shareholder wants to leave a business, you want to control those shares in some situations. By knowing what those shares are worth, you know what a fair offer would be instead of worrying about overpaying or stripping the business of vital capital.
- Adding additional shareholders: Have you ever had someone ask about buying into your company but you don't know what the shares are really worth? A business appraisal helps you know your business' true value.
- Estate planning and taxes: If there are only two constants in our world, it's death and taxes. In the case of estate planning, knowing what your business is worth allows you to plan for the inevitable taxes that are to come, so that you can ensure your legacy lives on.
- Key person insurance: What would happen if your partner or other vital part of your business passed away or was disabled and unable to work? A business valuation helps prove what their contributions to your business actually are.
- SBA loan guarantee: When you need to get an SBA loan, you'll need to document what your business is actually worth.
- Strategic planning: A depreciation schedule may not show the true value of your assets, and if your balance sheet hasn't been adjusted for a variety of possible changes, you may be taking a larger risk than you'd intended. An up to date business valuation helps you make better business decisions with good information.
- Buying a business: When you're considering buying a business, you want to make sure there are no unpleasant surprises waiting in the books or the market. Because a quality business valuation looks at potential income, market conditions and similar concerns, you can rest assured that you're making a good investment.
- Litigation: Nobody likes being sued, plain and simple. When you're going through litigation, whether it's a divorce, injury case or any other type of court case, you want to be sure you can prove the value of your business, so that any damages can be based on what your company is actually worth instead of inflated figures from a lawyer's estimate.
As you can see, there are many common reasons business owners have a business appraised. If you haven't had your company valuation performed recently, what's stopping you? Knowing the valuation of a company is a valuable tool.