Should you get a valuation for your business?

Getting an independent valuation for your business can be an expensive task. When you're in the thick of running everyday operations, it might not be an important assessment to invest your time and money into.

That said, on some occasions the expense can make good financial sense. Here are three situations in which it might be useful to get a valuation for your business.

1. If you're planning to sell

Selling a business requires that you have an asking price, or at the very least, know what the business is worth. How can you get the best deal for yourself if you don't know what the business you're selling is really valued at?

During negotiations, you're going to be on your best strategic footing if you know exactly what the business is worth too. Prospective buyers will have similar business savvy, so they are going to want the best deal for themselves too. You need to work out what prices you want as well how much you need to avoid making a loss.

It's imperative you know what your business is worth before you try to sell it.

2. If you're succession or estate planning

There's nothing comfortable about planning where your assets will go after you pass, but it's something you need to think about, especially as a business owner. 

Knowing what your business is worth might help you decide whether you want to split it between multiple beneficiaries or not. For example, how would giving the business to one family member impact relations between the other members? What if it was far more valuable than you had thought when you made your will? An informed and fair decision requires you know the value of your assets.

3. If you're trying to expand

Business expansion almost always requires more money.  Very often this comes from selling equity. Thinking of this as a partial sale makes it obvious why you need to know what the business is worth – in order to price a portion properly, you need to know what the whole is valued at.

Sometimes you may choose to finance expansion with a loan – this too usually requires knowing the business' value, as the bank wants to know what the collateral they are lending against is worth. Often the bank will organise this themselves, however, you will still have to foot the bill.

For more information on how Wilson Porter can help you with your financial planning, get in touch with a member of the team today.