What a Business Valuation Can Tell You … Even If You’re Not Selling
When you hear the term “business valuation,” what comes to mind?
If you’re like many business owners, your thoughts likely jump to mergers and acquisitions. Fair enough! Knowing how much your business is worth is an essential piece of information when you’re preparing to sell to or merge with another company.
However, while valuations are an integral part of the M&A process, they can offer insights and advantages that go far beyond an impending exit.
In fact, regular business valuations can be one of the smartest moves you make … even if you’re nowhere near ready to sell.
What Is a Business Valuation?
Simply put, a business valuation is an objective assessment of your company’s economic value. It takes into account a wide variety of factors, including:
- Financial performance (past and projected)
- Assets and liabilities
- Intangible assets (e.g., intellectual property, brand value)
- Market position
- Competitive landscape
- Industry trends
The methods of valuing a business vary – among the most prominent being asset-based, income-based (think: discounted cash flow) and market-based valuations. But the goal is always the same: to arrive at a reliable estimate of what your business is worth.
Why Get a Valuation If You’re Not Selling?
You might be wondering why you’d bother with a valuation if you’re not currently seeking buyers. Here’s the truth: knowing your business’s worth isn’t just about preparing for a sale –it’s about empowering yourself to make smarter, more strategic decisions every day.
Let’s take a closer look at how valuations can support key areas of your business:
1. Growth Strategy and Benchmarking
A business valuation offers a clear, data-driven snapshot of where you stand today. This can help you set smarter growth goals, identify gaps and track progress over time. It also provides a baseline to measure performance improvements.
2. Tax Planning
A comprehensive valuation also plays a critical role in strategic tax planning.
Valuations allow you to better understand how different business structures might affect your value and tax liabilities. They can also help you assign specific values to depreciable assets, which helps you optimize your deductions.
Additionally, valuations are useful when it comes to tax issues surrounding succession planning, setting up a trust and considering gifting shares to family members. Having an accurate valuation ensures that you’re complying with IRS guidelines and minimizing estate and gift taxes.
3. Funding and Financing
Looking to secure a loan, attract investors or raise capital? A current business valuation is a powerful tool in those conversations.
Lenders and investors want to know your business is financially sound. A third-party valuation demonstrates credibility, offers transparency and gives external stakeholders confidence in your worth and financial reporting. It can also help you secure better terms and higher valuations during investment negotiations.
4. Internal Planning and Decision-Making
From budgeting to long-term planning, a business valuation offers a big-picture perspective. Knowing your valuation and the drivers behind it can inform key decisions around operations, hiring, infrastructure investments and product development.
It also forces a deeper dive into your financials and operations – sometimes surfacing red flags or opportunities you hadn’t noticed. When done regularly, valuations can serve as a strategic health check for your business.
5. Partnership or Shareholder Structuring
Valuations are especially helpful in scenarios where ownership is shared – whether among family members, business partners, or outside investors.
Having a valuation on hand can simplify discussions about buying or selling shares, onboarding new partners or resolving disputes. It sets a common baseline everyone can agree on and minimizes the risk of misaligned expectations or misunderstandings.
Plus, if you’re implementing or revising a buy-sell agreement, a formal valuation ensures terms are equitable and defensible.
6. Succession and Exit Planning (Eventually)
Even if you’re not ready to sell now, you might be preparing for a leadership transition or eyeing retirement down the road.
Getting a valuation well in advance of your exit allows you to optimize the value of your business over time. You’ll have a clearer picture of what buyers might pay and can proactively address any weaknesses that could impact your selling price. That means fewer surprises –and a better payday – when you are ready to step away.
When Should You Get a Business Valuation?
There’s no hard-and-fast rule, but many financial experts recommend getting a formal valuation every one to three years, depending on the complexity and stage of your business.
Major milestones like bringing on a new partner, expanding into new markets, restructuring debt or launching a new product line can also be ideal times to reassess your business’s worth.
And don’t forget: The value of your business can fluctuate significantly over time. A valuation done five years ago won’t be much help today – especially if you’ve grown, pivoted or weathered economic shifts since then.
Ready to Understand the True Value of Your Business?
A business valuation is more than just a number. It’s a strategic tool that can guide smarter decisions, protect your interests and position your business for long-term success – regardless of whether you’re thinking about selling.
McManamon & Co. is an accounting, tax, fraud, forensic and consulting firm that serves small and midsize businesses. Our experienced professionals provide in-depth business valuation services to help you understand your company’s financial standing, plan for the future and uncover new opportunities for growth.
Call us at 440.892.8900 or contact us online today to schedule your business valuation and get the clarity you need to move forward with confidence.
Tags: business valuation, McManamon, small business | Posted in business valuation, McManamon & Co.