Business Valuation Blog | Understanding Buying / Selling a Company

If you own a small business, knowing what your company is worth isn’t just about preparing for a sale or attracting investors. It is also a powerful tool for internal planning and strategic decision-making. Business valuation provides insights that go far beyond a price tag, helping leadership make informed choices about growth, resource allocation, succession, and performance tracking.

Many businesses overlook valuation as a strategic planning tool. Understanding the value of your company helps you clarify financial health, shedding light on your company’s assets, liabilities, revenue streams, and risks. It can also assist in setting measurable goals by establishing a benchmark value, which allows you to track the impact of strategic initiatives over time.

Other internal uses for an updated business valuation include support for budgeting and forecasting, evaluating existing investments and potential expansion, succession planning, and ownership changes.

Different valuation approaches may be used depending on the nature of your business and the information available. Credentialed, experienced business appraisers will consider the three approaches to value (Market, Income, and Net Asset) while relying on those that make the most sense for your specific company. For example, the income approach may be a better method if you’re looking at future profitability, risk, and growth potential, all core factors in long-term strategic planning.

Integrating an appraisal into your regular business cycle helps you identify value drivers and detractors, monitor financial trends, adjust strategies proactively, and increase organizational alignment with long-term goals.

Consider a formal appraisal update when you’re holding strategic planning sessions or considering major changes in management or ownership. In addition, during periods of significant growth or after downturns, during a merger, or while prepping for financing and debt restructuring.

Business valuation can be a strategic mirror for internal reflection. When engaging regularly with a seasoned professional appraiser enables smarter planning, sharper fiscal management, and more resilient growth strategies.

As a small business owner, there will be times when third-party consulting services become a necessity in order for you to complete certain goals and accomplish plans made earlier in the year which are now becoming a more immediate concern. Whether that’s refinancing your debt, obtaining new working capital, buying out or adding partners, updating stock value, or any similar internal planning, there is usually a requirement to seek independent advice and reports to eliminate potential bias.

Engaging with a qualified business appraiser should be at the top of this list of external advisors given that their reports will be relevant in virtually all of these potential scenarios. Like everything involved in day-to-day operations, you want these longer-term projects to go as smoothly as possible and have an optimal outcome. What are some of the ways to increase the chance of this happening?

Start the Process Early

As with most business decisions, the longer you put them off, the less care and planning will be involved during the process. These goals may take months to complete so the earlier you start to take initial steps, the more time you will have to effectively work it from start to finish.

Ask For Advice

When working with valuation professionals or any other type of consultant, take advantage of their experience and expertise by asking a lot of questions. These advisors have been involved with hundreds of similar projects and can offer thoughtful advice on how best to work through the transaction.

Utilize Internal Resources

Whether it’s your company accountant, controller, finance manager, or other senior employees who may provide insight and another pair of hands, consider bringing them into the fold as part of your team to manage this project. Don’t take everything on yourself unless you have no other choice.

Provide Full Disclosure and Be Completely Honest

Have the advisors sign an NDA (Non-Disclosure Agreement) so you are comfortable sharing internal reporting documentation. Work with the consultants to break down these statements into a more realistic picture of your cash flow and growth potential. Don’t be afraid to discuss the true picture of your company’s finances as opposed to what might be limited to accounting or tax reports.

In summary, as a business owner, you are the expert when it comes to describing the history and future plans of the business. Getting the most out of your internal team as well as the independent advisors you engage will give you the best chance of an optimal outcome for these longer-term goals.