Why You Should Always Know the Value of Your Business
If you've been riding the waves in your small business for the last few years, you may have increased your annual revenues, kept your overheads in order and have returned a nice profit. You may have one or more shareholders who are equally as happy as you when it comes to the direction of the organisation. While you will undoubtedly have access to important metrics to help you make day-to-day decisions, are you in touch with the bigger picture perspective? If you don't actually know how much your business is worth, what risks are you taking?
Knowledge Is a Good Thing
Many people think that they only need to know a business valuation when they're getting ready to put it on the market and sell for a profit. While this is certainly a good reason to acquire the knowledge, it's not the only reason why you need to have your finger on the pulse.
You Know Where the Start Line Is
You may have been growing gradually over these years, but what if you want to make a significant expansion? You may have to stretch yourselves in many areas and will want to know exactly what you need to do as your expansion unfolds. You want to make sure that you don't have any negative areas in the business that could not just pull you back, but potentially derail the whole project. When you know what your business is worth, this will provide you with a great benchmark.
You Can Do More Inward Investment
When you expand in this way, you may need to attract additional investment. There are many private equity firms, venture capitalists or strategic partners out there, but they will want to have very accurate data before they consider any engagement. Sometimes, an organisation like this may approach directly as they like what they see and want to test the waters. You need to have your data readily to hand so you can engage with them on a timely basis, before they lose interest.
You Can Plan for Unforeseen Circumstances
You should also think about your family and loved ones, especially if something were to happen to you. If they are not in a position to run the business in your absence, then they need to turn to an accurate business valuation in order to tidy up loose ends. Equally, if you do have other partners, then your share of the value will need to be accounted for as part of your estate.
You Can Plan the Exit
Most business owners intend to sell the company at some stage. To get the best return possible, they need to increase turnover, improve the bottom line (or EBIT metric) and make sure that they keep expenses in check. In this way they will be able to get a higher multiple valuation, and this could give them an exponential payout. It's impossible to push everything forward if you don't know where you are starting from, so get a proper valuation as soon as possible.
Your accountant can help to gather the information, as you narrow it all down.