What is the value of a private company? Publicly-traded companies are bought and sold based on their stock prices, but understanding the worth of businesses owned by an individual or set of partners takes a little more work.
If you’re thinking about selling your business, you need to first understand what it is really worth to a potential buyer, and that requires a business valuation. The best valuations are done by professionals who don’t just know the company but also understand its place in the industry as a whole.
To that end, here are the three reason to have your business properly valuated so you can make the process easier and lead to a better final result.
1. Professional Valuators Know What Drives Value
The value of a business is not always easy to deduce, and the history of capitalism is filled with stories of people who cashed out of growing companies right before they took off. Evaluating a business isn’t as easy as calculating yearly revenues and adding up the assets, which is why professional valuators who want to understand how value is created look at specific drivers.
A driver is something that can add to or take away from the overall value of your company in the mind of a buyer. Typically, they include things like:
- Ability to exploit economies of scale
- Financial performance
- Workforce (skilled employees can enhance value)
- Customer base
- Brand penetration
- Access to capital
Professional valuators with experience working with businesses in your industry will be able to find value where you might not see it, and may also be able to advise you about how to make your company more appealing to buyers.
2. Professional Valuation is Comprehensive
As the previous point makes clear, valuation isn’t just a question of accounting. A trained valuator needs to look at a number of different dimensions in able to establish the going rate for a firm.
But valuation is also a complex process, and one that sometimes comes with legal ramifications. Outsourcing this work to professional valuators help ensure that you handle the process in a comprehensive way that covers the valuation itself as well as due diligence, Opinion of Value reports, and all the other paperwork involved in producing an official valuation.
3. Valuation Cuts Through Partner Disagreement
If you aren’t the sole owner of a business, you need to work with your partners toward a sale — but establishing the value of your share can be difficult if there is disagreement between you and your partners about how much the company is worth.
In some cases, these disagreements can become rancorous, in which case the whole sales process becomes much harder than it needs to be. By establishing an objective market value for the company and detailing where it comes from, professional valuation can cut through these disagreements to the deal can move forward.
Selling a business is not a decision to be made lightly, and if you put years of your life into building a customer base and a brand, you’ll want to make sure you reap the rewards of your hard work to the greatest extent possible. Finding out the full market value of what you’ve built is the first step toward doing so.
