Business Valuation Blog | Understanding Buying / Selling a Company

Why are your reasons for a business valuation important?

Posted by Business Valuation Specialists LLC on Sep 19, 2018 4:21:00 PM

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.

Topics: reasons for a business valuation