Back to Basics: What You Need to Know About Business Valuation
Jun 08 2016
Determining the value of your business is important, and for more reasons than you may think. Not only can it help you determine where you stand as a business owner, it can help you project goals for the future, as well as correct mistakes from the past. The two key components in establishing a business’s worth are determining why business valuation services are needed, and assembling the necessary information. That said, here’s what you should know about determining the value of your business.
Why should a business owner perform a valuation?
Some valuations, often called “have-to valuations,” must be done as a direct result of an event, such as the death of a shareholder, a charitable contribution, or the allocation of assets. These business valuation reports must be filed to document the market value that was either gained or lost as a result of the event. However, other valuations are used to make important decisions about the future of a business. Of the 26.5 million businesses in the U.S., every single one has probably needed a valuation done at some point or another. With 99% of those businesses having less than 500 employees, valuations are all the more important. It allows owners to decide whether or not to expand, as well as make other financial decisions for the advancement of a company.
Is there a specific time frame in which valuations should be performed?
Business valuation tools can be used at any time, but in “have-to valuation” cases, the valuation must be completed within a certain amount of time. The length of the time frame varies based on the event, but the fact remains the same. Other business valuations don’t have a specific time frame, and can be done at any time. Despite the lack of official requirement for valuations, it’s important for business owners to know the value of their business at all times.
Why are business valuation firms important?
Business valuations are becoming increasingly important in today’s market for a variety of reasons — especially in fields such as corporate accounting, which works to improve financial reporting. So far, the industry has relied on scattered sources for valuation, but new technology will allow a more standardized and streamlined process. The firms that provide these services can help business owners make decisions for their personal future and the future of their business.
Performing a valuation on your business is always a good idea, especially if you’re starting to think about estate planning or simply looking for ways to increase your business’s worth.