The main reason you need to have your company properly and accurately valued is to maximize the value you receive from your business. What is measured tends to improve, and valuation is no different. There are several scenarios in which you’ll benefit from knowing the real value of your business.
1. A full exit: This is how the rich get rich. They build a business and sell it for a whopping big capital gain. Could you do this? Maybe. Can you do this without a valuation? No.
2. A partial exit: This is where someone buys some of the shares in your business, and you can take some money off the table. If there are multiple share sales, you’ll need a valuation each time.
3. Investment: When someone puts money into your business to help it grow, they will want to see your business plan, your shareholders’ agreement, an investor memorandum and a valuation. If you’re growing fast, you might be better off paying an advisor to construct a Discounted Cash Flow to help you maximize the future value of the business.
4. A restructuring: If you’re buying out shareholders, moving jurisdictions, changing your legal entities, or acquiring new companies to add to yours, you’ll likely need to have an independent valuation completed.
5. Acquisition or share-swap: If your business is buying a complementary business and exchanging cash or shares in the deal, you should value both businesses to ensure the deal is completed properly.
6. A separation of partners: The business you and your partner started might have grown, but the relationship you once shared has worn out. This might be the time for one of you to buy the other out. There’s no point arguing over the valuation – get the report as a starting point and negotiate on the finer details.
7. A divorce: If you or one of your major shareholders gets divorced, the shares are probably going to be part of the settlement, and you’ll need to be armed with a valuation to ensure all your options are open. You don’t want the shock of discovering the other side has done their homework and engineered a value you don’t agree with.
8. Creating an employee bonus program: We all love the idea of having a workforce who treat the business like it was their 43 own, but you can’t expect them to feel that way if it’s not actually the case. An employee incentive scheme can create a high-performance culture, especially when employees can see the needle moving on the value of their shares.
9. Tax planning: Wealth builders plan ahead so they pay the least tax necessary, and a valuation report can lead to additional benefits you might not otherwise claim.
10. Insurance: Over 70% of all small businesses are underinsured and have no way of recovering lost value in the event of a loss that wasn’t their fault. If ever you were injured or wrongfully distracted from your business, a historical valuation could be worth real money for you, especially if you have considered this in your insurance choices.
11. Managing a portfolio of businesses: If you own shares in a number of private businesses, you’re typically unaware of the value of your portfolio until they start to sell, but that could be years away. A smarter approach is to value the businesses at regular intervals and monitor the portfolio over time so you can be a more thoughtful investor/shareholder.
12. Satisfying your curiosity: Let’s be honest, who’s not curious about the value of their business? It may be your most valuable asset, so you should know how much it’s worth. Business valuation and key performance indicators (KPIs) serve as regular health checks for your business.
Has your curiosity gotten to you? Happy to give you a valuation that can benchmark your firm. Move over to my biz valuation tab on this site and find out today.