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Top 5 Benefits Of A Business Valuation

importance business valuation

Taking the time to understand the true value of a business can bring you one step closer to success.

Small business owners have invested a considerable amount of their own money into building their dreams. A business valuation will provide a business owner with multiple facts and figures regarding the actual worth or value of the company in terms of market competition, asset values, and income value. In taking the active decision to begin understanding their value, an owner can witness not only the growth that occurred thus far, but provide themselves with a road map to deliberate decision making.

1. Access To More Investors

When it comes time to reach out to additional investors to fund company growth, a business valuation report is commonly a prerequisite. Investors want to see an active layout, not only in terms of current value but a comprehensive value projection. If Investors can comprehensively see where their money is going and how it will provide them with a smart return on investment, they are more likely to seriously consider a proposal.

Having an intimate understanding of one’s current business valuation will allow a business owner to assess where the most value will come from. This will give them an edge to spark the interest of potential investors and carry their company to the next level. 

2. Smart Decision-Making To Enhance Your Business Value

A valuation at its fundamental level will highlight what makes a business valuable. Having a knowledge of the factors that most positively impact performance, will provide business owners with an informed look at how they can work to increase their overall value. 

3. Sale Value

While the sale of one’s business is usually a once-in-a-lifetime event, it is important to keep it in mind as early as inception. A business owner may pour many years, even decades, into their business so when it comes time to pass it on, they should be receiving the best “bang for their buck.”

The valuation process begins long before one’s business is put on the market. Prior knowledge of one’s business valuation provides the owner the strategic time to invest in what will most positively affect the growth of a company’s value to achieve a higher selling price. 

Business valuations can help keep a business on track and in turn, inform the best overall exit strategy.

Neumann & Associates, LLC CEO Achim Neumann said, “We are approached by business owners to have the value of their business determined two to four years prior to its contemplated sale.” (Kulkarni, 5 Benefits of Getting a Business Valuation)

4. Understand Where Your Business Fits In The Industry

A business valuation will describe, precisely, where one’s business fits into their overall industry sector. Using intuitive public data points, a valuation will draw upon previous market value prices or the sale of similar company types recently sold or publicly traded.

This will allow a business owner to see where their progress lies on a national scale and in turn, provide them the opportunity to strategize how best to invest their financial portfolio to grow their business. 

5. Obtain A True Company Value

A business owner will commonly have a general idea of what their business might be worth based upon simple financial portfolio factors (ie. total asset value, company bank account balances, etc.). However, while important, these factors can never paint the full picture of the overall value of one’s business.

A business valuation draws upon a multitude of factors, of which can each individually affect the growth or decline of value. It also helps to show company income and valuation data over time. 

Knowing the true value of one’s business can often be a deciding factor in whether a sale is the best possible option for the owner.

Conclusion 

Once a business valuation has been established, a business owner can proactively set new goals to increase the company’s value over the next year. 

An annual valuation calculation helps private business owners stay on track for growth, as well as identify areas that can be improved for increased valuation impact. 

Recommend0 recommendationsPublished in Ascenum Blog, Business Valuation

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