Five Business Scenarios Where a Business Valuation is Important

Business valuation accurately determines your company’s value through the use of sound principles. A business valuation consultant can establish the worth of your company by applying valuation approaches. A valuation adds confidence, security, and insights to the business decisions you make. But when you should have a business valuation done? Below are business scenarios that require a current business valuation:

When You Purchase, Sell, or Merge a Business

A business valuation gives you a huge negotiating power when you sell, buy, or merge a business. When you sell, business valuation ensures your asking price is not too high. Otherwise, it can take a while for a business to sell. If you are the buyer, a business valuation provides you with a better picture of what you are getting for your money. 

When You Develop a Succession Plan

Your success plan must be made when you restructure your business, close it, or sell it. An up-to-date valuation allows you to develop a strategic and informed action plan. Before your exit from the company, the insights from the valuation can be used to increase the value of your company. Subsequently, you can have more from your retirement package. Through a business valuation, you can make improvements today that your business can benefit from in the future. 

When Divorce Occurs

During a divorce, personal assets and liabilities will be divided between spouses. If you will be in this situation, your business becomes part of the division process. The value of your business interest is an asset to which your spouse could be entitled.  Knowing your business’ current value allows you to properly divide this asset. 

During a Buy-Out

If a business owner passes away, the organization or the remaining company owner may wish to buy their shares. They may need to buy these shares at fair market value. Often, the governance documents of a company state that such value is determined by a qualified appraiser. 

Concerns about how the business will continue may arise. Who will run the company? Will the value of the dead owner’s interests increase or decrease? With a business valuation, you can decide what happens to your business when you or another owner dies. The same is true when one of the owners leaves the company. 

When a New Owner is Added

If you plan to add a new business partner to your ownership team, you can use a business valuation to establish a fair buy-in price. Also, you can give the new owner important information on the financials and operations of the company.