The Real Value of Valuation

The Real Value of Valuation

While the need for a business valuation has historically been event-based (i.e. succession planning, shareholder dispute, tax planning, etc.) there is, arguably, even more value to a business owner and their advisory network in understanding the current status of the business even when there is no “event” to get the ball rolling.

As a business owner, you want to build a healthier business over the years—regardless of your size, industry, or personal goals. For most SMB’s, their business is their largest asset—but 98% of them don’t actually know what it’s worth.

Setting a stake in the ground for your business today—and being able to measure your progress over time—allows you access to key health indicators about your business, an understanding of what value you’ve built in relation to what you need or want it to become, and the ability to impact change long before there’s any kind of exit event.

As a business owner, you deserve access to ongoing, updated valuation metrics so you can derive value in 3 core ways:

Creating a Windshield View

One of the most common misconceptions about valuation is that it has no forward-facing utility. Traditional valuations are based on historical data, and only take into account things that have happened in the past (and not potential for the future). However, the ability to plan for the future based on facts—not assumptions—is only possible by setting a baseline of value today.  

Preparing For The Next Chapter

You may not know what the future holds—whether you have kids who will someday take over the business, whether you’ll be looking for a seller, or whether the business will wind down once you decide to move on to the next chapter. The “what”, or even the “when” of these future decisions may not matter to you today—but what should matter is the value of your business in relation to your personal financial goals, and what you will need to be able to extract over the years in order to fund a healthy retirement.

Too often, business owners wait to find out what their business is worth only a few years before they’re ready to exit—and sometimes their expectations and the reality are significantly misaligned. Leveraging the opportunity for constantly updated valuations with up-to-date data allows you to plan for your future with real numbers in mind—not just a “gut feeling” about what you might be able to sell for someday.

Driving Data-Driven Decisions

You likely have a network of advisors who are tasked with helping you and your business: your accountant, your lawyer, or your wealth advisor, to name a few. While they each can provide the “necessary evils” like tax returns, shareholders agreements, etc. there are often opportunities within your ownership journey where expertise from an advisor would be beneficial—but you might not know that it’s the right time to pick up the phone.

When you and your advisors have access to current data and trends about your business, you can work together effectively to make data-driven decisions when the time is right.