5 Reasons you should understand the Value of Your Business

Ever wondered what your business is worth? If you aren’t planning on selling in the near future you may not have even thought about it. However, we think it's important to always understand the value of your business and outline 5 compelling reasons why!

1. Planning to grow

Before you take the next steps to grow your business you should know what it's value is at today's date. Having a current valuation is important when planning for growth.  

Valuing your business is not an exact science, and there are different valuation methodologies that can apply.  For instance, you can value the assets of a business (how much it owns) or take into account the projected revenues or cash flows. 

In either scenario, having a starting point for the value of your business will help you measure your success on a more regular basis. This benchmark can be used to identify areas for improvement and gives you a point of reference to focus your efforts appropriately throughout the growth life cycle.  

2. Selling your business

Of course if you are wanting to sell your business you should have a clear and independent understanding of the value to help you with your sales negotiations. Not only does a comprehensive valuation of your business provide the current market value, it also assesses the overall business performance in a number of areas.

3. Attracting Funding

Often in order to grow you will require investment.  Investment takes many different forms but the most likely is from a Bank or a private investor.

With Bank funding, in order to secure finance the banks will want to understand the value of the business. An up to date valuation report covers your business’ history, legal structure and financial information and can present like your business’ resume. 

When working with investors you will need to have annual valuations in order to provide them with up to date and independent assessments of the business and how their investment is tracking. 

Banks and Investors are likely to want different information at any point in time.  Therefore having the right tools in place that measure your businesses value and performance are important.

4. Approaching retirement & exiting the business

Retirement can be tricky when looking to exit the business either through succession planning or sale. Understanding the value of the business can help you and your advisers assess the best exit strategy for you and the business. Retirement and exiting a business take time and planning. Regardless of the exit strategy you need an accurate insight into the value of your share of the business.

5. Insurance

In order to have the right insurance in place and that you have an adequate level of cover you need to know the business value. Many business partners take out life insurance policies on the other partners, this is so upon the death of a partner there is a lump sum payment to the family members of the deceased for their share of the business. This means that they can be paid without disruption to the business operations or the livelihood of the remaining partners. Regular valuations ensure the right insurance is taken. 

Should I seek a financial adviser for help with my business valuation?

By working through the valuation process here at Azure Group, clients can appreciate the real value of their business and make decisions around the best course of action in their situation. We identify the key growth factors, and help business owners implement simple but effective strategies that focus on increasing business value.