Business Valuation Blog | Understanding Buying / Selling a Company

Business owners may occasionally require a certified valuation in transactional situations and typically respond in a reactive manner to complete the task. Few, however, realize how crucial it is to keep that valuation current. An appraisal provides a snapshot of your company’s worth at a specific moment, but business value is never static. Market conditions, operational performance, and industry trends are constantly changing. Obtaining an updated business valuation annually is a smart and strategic move for many reasons.

Even if your business has a stable track record, the factors that drive its value rarely stay the same. Revenue may rise or fall, new competitors may enter the market, or industry multiples could shift. An annual valuation update captures these changes, ensuring you always have a current and accurate understanding of your company’s financial position.

Current information is critical for decision-making. Whether you’re budgeting for growth, considering expansion, or evaluating a potential merger, an updated valuation provides the foundation for sound strategic planning. It can also help measure whether past initiatives continue to add value over time.

Being proactive can minimize the effects of unexpected events. For example, if a potential partner wants to exit the firm, having a current valuation on hand allows you to act quickly and negotiate confidently. Business disputes and even personal life changes, such as a divorce or a change in your health, can be tackled efficiently and effectively with an updated valuation that protects your personal interests.

For owners considering succession, annual valuations help track progress toward their transition goals. They also provide critical support for estate planning, gifting strategies, and buy/sell agreements. Accurate, current data makes these processes smoother and more defensible.

Banks and investors rely on credible valuation data to assess financial strength. By maintaining an updated valuation report, you demonstrate transparency, accountability, and a commitment to understanding your business, all traits that inspire confidence in financial partners.

Updating an existing valuation can be less expensive than starting from scratch. Most of the foundational work is already done, and the appraiser can update their analysis and report in a more timely and cost-effective fashion.

In summary, obtaining a business valuation shouldn’t be a one-and-done exercise. Just like you review your financial statements each year, updating an appraisal annually ensures you always know where your company stands. It’s an empowering step toward planning, protecting, and growing your business with confidence.

When you run a business, there are any number of reasons why you may want to figure out the value of that enterprise. Unfortunately, the different reasons for a business valuation mean there are a number of different ways to determine that value. Let's take a good look at exactly what kind of situations are used for a business valuation and why they cause different values.

Why are your reasons for a business valuation important?

• Business sale. This is one of the primary reasons a business valuation is performed. The sale of a business causes almost all business owners to wonder what their business is worth and whether they're asking the right price for it. Though this process is sometimes handled by a realtor, that doesn't give you the information you need to make improvements prior to a sale, increasing your business' value and improving your negotiating position.
• Passing on ownership. Though this isn't done as often as valuations for the sale of a business, it probably should be. You've put a lot of blood, sweat and tears into your company, growing its reputation and its value over the years. Taking the time to get a valuation performed helps ensure you'll be in that much of a better position to enjoy your golden years.
• Partnership dissolution. This can involve either a platonic partnership or a marriage. The side that is staying in the company wants to pay the other party the lowest possible price while the other party wants everything they can get out of it. That's one of the reasons why this type of valuation must be a fair market value calculation.
• Settling an estate. This can be a tough situation, especially when there are multiple heirs to the business, some of whom want the business sold quickly and others who want to wait for the right price. The approach used by the appraiser typically depends on the overall views of all the heirs, allowing for a reasonable amount of time to find the right buyer.
• Merger or acquisition. When a business is absorbed into another one, it's usually a weaker business being absorbed by a stronger one. That's not always the case, however. If business professionals feel they can go it better together than alone, if one has a reputation for innovation or any number of other reasons, a valuation specialist should be used.
• Going public. How much do you want to start those initial shares out at anyway? There are a number of valuation techniques that can be used to compare your currently private company to a public one, allowing you to determine your company's value and price those shares at a rate that is fair to your own investment.
• Liquidation. Though no business owner wants to consider this specific issue, it's a matter of fact for some businesses. Wouldn't you rather get a better idea of what your assets are worth before they hit the auctioneer's block?

By understanding the reasons for a business valuation, you have a better grasp of why these reasons can shift the value of your business one way or the other. When you need to have a business valuation performed, for whatever reason, you'll want to make sure that you're working with a certified business valuation specialist. The training, experience and expertise they have means you'll get a valuation report that reflects your business' specific circumstances.