5 Reasons Why You Need A Valuation / by Kerri
Valuation is important at every stage of your business lifecycle. Owners assume it’s implicit in their revenue goals, growth goals, hiring and expanding. Instead, a formal tangible valuation is essential all along the way to keep your company on course. These five reasons are tied to the lifecycle of every business.
Ideally, if you follow Stephen Covey’s advice to ‘begin with the end in mind,’ you will perform your first valuation before you open your doors. This will give you a baseline for everything else you do. It also starts the habit of focusing on value, not just revenues.
As you grow your business, periodic valuations are a measure of how the market would value every area of your business. A valuation report will help direct you to focus on certain value drivers to achieve your objectives.
Consistent periodic valuations will help you measure your position in the market, your competition, as well as timing the best opportunity for your sale or exit. Basing your exit timing on objective third party reporting will guide you to make strategic decisions that give you more leverage in negotiations before you get to a transaction.
If your business is in decline for any reason and you have been conducting periodic valuations along the way, you will see the symptoms of that decline earlier, be in a position to respond and correct the situation to mitigate risk and damage.
The valuation process owners are familiar with is the one initiated by the intended buyer or acquirer. This valuation on its own, late in the game, is a wildcard – you don’t know what their business appraiser will discover, focus on or be concerned by. Any questions or concerns they find will (intentionally) discount the offer price or possibly derail the whole thing. But if you have a history of three or more periodic valuations:
- You won’t be surprised by anything they find, anything they ask for
- You will be better prepared for the process
- You will have uncovered and resolved every concern they could raise, beforehand.
- You will have your documents complete, up to date, accessible, in a format they seek
- You will fare much better through the process because you are prepared to be so forthcoming
- You will be in a position to support and defend the value you expect to command in the marketplace.
There are many different ways a business appraiser can value your business. In addition, a wide range of objectives also affect how the calculations are done. Be sure your periodic valuations are consistent in formula and objectives.
I don’t perform valuations, but I do help you build, track and measure the value drivers that will enhance your market valuation. Call 508.820.3322 or email us to discuss your unique situation.