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Why Valuations Help Businesses Grow

A valuation is much more than a routine process you undertake before starting a business transaction — it’s a roadmap that shows you exactly how to make your business more valuable and profitable.

Dan Anderson

Attorney @ Thompsan & Associates
Lead attorney on 25 + M&A deals for Manufacturing companies.

It’s also critically important to have a recent valuation on hand anytime you’re ready to consider an exit, raise capital or pursue other key events in the life cycle of your business.

What Are These Key Events?

  • You’re seeking outside investment
  • You’re buying out other owners
  • You’re applying for a business loan
  • You’re offering employees equity

In such cases, a recent valuation is going to be a prerequisite before moving forward as it provides clarity regarding the market value of your enterprise. Having one at the ready can help these processes move faster while making the business owner look prepared, conscientious and professional.

That’s Not the Only Reason Why Valuations Are Important

  • A baseline value number is far from the only benefit to be gleaned from a valuation:
  • Valuations can help you better understand your business and its competitive position within the broader market.
  • They can also create more informed growth strategies, showing you how much to reinvest into your business and where to deploy your capital most effectively.
  • A valuation can give you a deeper understanding of your company assets, which allows you to properly value, insure and protect those assets in case of litigation, taxes or divorce.
  • A proper valuation also helps you prepare for succession or estate planning activities.

Why Use a Professional?

Some business owners use back-of-the-envelope estimates to arrive at a rough calculation of their company’s value. An owner may look at total asset value, cash on hand, profitability and other basic financial metrics.

Yet unless that owner fully understands the value of intangible assets, local market dynamics and how larger market trends impact future growth potential, an incomplete picture will result.

A professional valuation provides an accurate picture into the financial value of a business and can serve as a roadmap for increasing that value. Such a roadmap can be critically important if you’re seeking to sell your business and you need to identify some quick, high-impact steps to make your business more attractive before negotiations start.

It’s a process that is very similar to getting a credit report, identifying problem areas to fix and quickly boosting your score. fvy

How Often Should I Seek a Valuation?

It’s not necessary to wait for one of those key business events outlined above.

Having a valuation performed every 12 months will ensure that you are ready to move forward immediately if you want to exit, raise capital, acquire another business etc. Yet, just as importantly, valuations serve as a lodestar for your company’s future growth.

Many savvy business owners set aside time each year to review their current valuation and compare it with valuations from prior years. They can then measure the areas where they have grown and improved, the areas where they are still falling short and the existing opportunities to add additional value.

After all, if you can’t measure something, it’s difficult to improve it. Valuations are a crucial first step in identifying a baseline value and measuring the progress you’ve made toward growing your business and boosting that value.

The Takeaway

Owners who commission regular business valuations grow their companies faster and earn a significant competitive advantage. The only stumbling block for most business owners is the cost. removes that obstacle by offering free business valuations. We urge you to contact us today for more information — and learn more about the true value of your business and what you can do to increase that figure.