Valuations

An “Accurate Valuation” is Important for Small Business Owners

Every business owner should have a current business valuation so that they know what their company is worth and where their company fits in the landscape of their market. A current and accurate valuation provides you the best information possible in order to make informed decisions about the direction and future of your business.

Business owners time their exits for many reasons: health, retirement planning, availability or lack of family successors, competition, technology change and many more. Yet overwhelmingly the question we are most often asked as business brokers is “What’s my business worth?”

As a small business owner or professional you will run into situations where you need to professionally “value” your business. Business valuations are often done as part of any divorce or estate planning or asset/financial related process you are going through. Insurance salesmen will often request a business valuation to determine the size of certain types of insurance policies. Business valuations are often conducted when you are anticipating a financial event in your business such as adding a partner or equity owner; the creation of a ESOP (Employee Stock Ownership Program); or prior to distributions to one or more investors.

When you place a monetary value on a business much more is involved than simply determining what a potential buyer might pay for it. There are many factors that need to be taken into account, such as;

the type of company
market value
investment value
growth potential
tax laws
potential discounts
the individual circumstances of each business owner.

You may have a “number or value” in mind… what you believe your business is worth. But how can you sure it is right? It might be too low.

Most of the time small-business owners have an unrealistic price in mind. In general, many business owners assume a generic multiple for their industry times annual revenue, or they compare themselves to a local competitor’s sale several months ago or longer. It is in your best interest to discover the true worth of your business, which is most likely your most valuable asset.

The value of your business depends on the type of business being valued and the standards used. In many cases, the purpose for the valuation determines the appraisal methods used to determine the value of the business. Among the most common standards are the fair market value, investment value and liquidation value.

All things being equal, a rational business owner will presumably choose to sell at a point of optimal value for his or her interest in the firm.

Timing is Everything, and the Future Looks Bright

At Sterner Consulting we believe that the next eighteen months may see the highest pricing for good small to middle market companies that we have seen in the thirty years that Sterner Consulting has been in the M&A advisory business. Whatever the reason Sterner Consulting has developed a cost effective method of preparing a business valuation for your business.

Call us today to discuss your business transition plans and needs.

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