Business Valuation Blog | Understanding Buying / Selling a Company

How Valuing a Small Business Provides Awesome Insight

Posted by Business Valuation Specialists LLC on Jul 27, 2016 10:00:00 AM


It's no great secret that small businesses are more flexible and nimble than larger companies, able to change production, focus and market more quickly than their larger counterparts. But as a small business owner, how do you ensure that you're not exposing your enterprise to excessive risk that could cost you your company? Valuing a small business gives you great opportunities to really see into the nuts and bolts of where your company is strong and where it needs improvement, allowing you to manage risk more effectively to take advantages of opportunities as they become available.

Maximizing Flexibility

There's no doubt that flexibility and the ability to nimbly change direction is one of the greatest advantages of small businesses over large businesses. But changing direction requires that you know the condition of your business before starting the change. Is changing your business to take advantage of market conditions or the business environment going to create growth for your company or slow it to a stop, even possibly putting it and everything you've worked for at risk. To take maximum advantage of changes in your market, you need to know exactly where your business stands to determine the maximum flexibility and profitability you can get out of it. One of the easiest ways to achieve this goal is by valuing a small business.

Knowing Strengths and Weaknesses

But how does the valuation of a company help you make it more flexible? All businesses, markets and owners have different strengths and weaknesses, but knowing where your business lies through a company valuation provides you with the information you need to know whether an opportunity is a good one that plays to your strengths or a bad one that preys on your weaknesses, leaving you open to significant risk and even the potential loss of your company and livelihood. Business valuations are one of the best ways to determine where these strengths and weaknesses lay, whether it's in undervalued equipment, overvalued assets or poor cash flow issues.

Reducing Risk

Valuing a small business allows you to know whether taking a particular approach to the market is a good idea or not. Business appraisals help you determine whether your business location has changed in value, keeping you from taking out a loan against your business property that is higher than the value of the property. It also helps you determine what your actual expected business income may end up being when you've had irregular income in the past, instead of making a change in your business based on a recent boom in your market that could leave you stranded when the market normalizes again. If you're considering a merger to expand your market share, will the new company reflect your company's strengths or pull it down by making weaknesses worse? By knowing exactly where your company stands, you can make business decisions that will leave your business strong instead of opening it up to potential risk and loss.

By having your business appraised by a qualified appraiser, you can ensure that you're making wise business decisions that will leave your company in the black and successful. Taking the time to have a business valuation performed gives you the tools and insight you need to be successful.

Topics: valuing a small business