Most small business owners have only a vague idea of what their business would really be worth if they wanted to sell.
And most of those who think they know what the business is worth are probably wrong.
Professional appraisers who regularly conduct business valuations say that owners err on both ends of the spectrum. Some fail to include intangible assets in their estimate (intellectual property such as trademarks and brand value, for example), and tend to undervalue what they’ve built over time.
Others think their businesses are worth far more than the market would realistically dictate. And of course, sentiment often interferes with good business judgment.
In many cases, owners don’t consider putting a value on the business a top priority. But it can still be important to the future of the business to know what it’s worth.
Independent business appraisers value companies and business interests of all types and sizes, from small sole proprietorships, such as medical practices to large corporations. Business owners often bring in an appraiser to prepare for a purchase, a merger or an employee stock ownership plan. Or a valuation might be needed for estate and gift tax returns, buy-sell agreements, litigation, tax challenges, divorce or other purposes.
But even if there’s nothing like that on your immediate horizon, every business owner should have a current valuation in his or her desk drawer as a tool for helping make informed decisions about the company’s direction. An objective and independent valuation gives you a much clearer picture of where you stand and where you’re going.
Here are four other reasons to perform a business valuation:
- To understand where your business fits in the industry landscape. A business valuation will describe precisely where you fit in your industry or specialized market, including the market price or value of similar businesses recently sold or publicly traded.
- To gain more insight into your “real world” financial condition. As a business owner, you probably have P&L and other financial reports to give you a picture of your financial health. But a valuation that includes intangible assets can expand on, confirm or deny existing beliefs.
- Make fast decisions on expansion, financing, sale or merger opportunities. When opportunities knock, you might not have time to conduct a business valuation. Having a valuation in hand will let you pursue opportunities as they arise.
- Make smart choices to enhance the value of your business. A valuation will highlight the things that make a business valuable, and show you ways that you can increase what your business is worth.
How to Get a Valuation
Selecting the right business valuation expert can be a bit tricky. There’s no business valuation specific college major, and states don’t require a specific license to practice business valuation. Nor are there any national requirements. You’ll see an alphabet soup of business valuation credentials such as ASA, ABV, CVA and CBA. The American Society of Appraisers (see below) can provide a breakdown of these and other business valuation credentials to help you find the right professional.
These resources can help you find a qualified business appraiser or perform a business appraisal on your own:
The American Society of Appraisers (ASA) is an international organization of professional appraisers. You can locate an accredited business appraiser at the ASA website under “Find an Appraiser.” Visit www.appraisers.org.
The National Association of Certified Valuation Analysts (NACVA) also offers a free service online to help you find a credentialed business valuation expert in your area. Look for the Member Directory at www.nacva.com. You can search by location, area of specialization or industry.
ValuAdder is a do-it-yourself software program ($275) that can help you determine the value of your business based on its income, assets and business sale comparables. Visit www.valuadder.com.
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