Expert Business Valuations: 5 Great Questions

Thinking about getting your business valued? While selling your company might be the first thought that comes to mind, a business valuation offers a surprising range of benefits beyond just a sale price. In this Q&A session, a business valuation expert sheds light on the true potential of valuations and answers some of your most pressing questions.

Q: Is a valuation only necessary if I’m planning to sell my business?

Absolutely not! Here’s why a business estimate can be a valuable tool even if you have no immediate plans to sell:

  • Management Planning: Understanding your company’s worth can be a game-changer for strategic planning. Valuations helps you identify key drivers of value, allowing you to focus on strategies that can significantly increase your business’s worth over time.

  • Financing: Whether seeking a loan or attracting investors, business valuations provide a credible assessment of your company’s financial health, potentially strengthening your position in negotiations and securing more favorable financing terms.

  • Beyond Business: Valuations can play a crucial role in life events like divorce, estate planning, or succession planning. Having a clear picture of your company’s value ensures fairness and avoids potential disputes in these situations.

  • Employee Incentives: Stock option plans or other incentive programs based on company value require a reliable estimate to accurately determine the value of employee rewards.

  • Litigation and Legal Matters: Business disputes or legal battles may necessitate accurate valuations to support your case.

Q: “Value” seems subjective. Is there a standard way to determine a business’s worth?

There are actually several established valuation standards, each used for specific purposes:

  • Fair Market Value: This is the most common standard and reflects the price a willing buyer would pay a willing seller in an arm’s length transaction. Understanding the buyer’s profile is crucial in this context.

  • Fair Value: Often used in legal situations like shareholder disputes, fair value focuses on pro rata value without considering disadvantages like lack of control or marketability.

  • Investment Value: This takes into account an investor’s specific goals and risk tolerance, as opposed to a general market value.

Q: What information do I need to provide for a business valuation?

To ensure an accurate and comprehensive estimate, valuation experts typically request the following information:

  • Financial History and Future Outlook: This includes past financial statements and projections for future performance.
  • Company Structure and Ownership Documents: Legal documents outlining ownership structure and any relevant agreements.
  • Past Valuations or Transactions: Any prior estimates or business transactions can be helpful context.
  • Operational Agreements: Contracts or agreements that might affect control or transferability of the business.
  • Company Infrastructure: Information on facilities, suppliers, customers, employees, and competitors.
  • Intangible Assets: Intellectual property like patents, trademarks, or customer lists.
  • Future Investments: Planned capital expenditures for equipment or infrastructure upgrades.
  • Contingent Liabilities: Potential legal or environmental issues that could pose financial risks.

Q: Will my information be kept confidential?

Absolutely! Business valuation experts understand the sensitive nature of company data and treat it with the utmost discretion. Client information is never shared with third parties without explicit authorization.

Q: Do valuations consider intangible assets like brand value or intellectual property?

Yes, and this is where valuation expertise truly shines. Intangible assets like goodwill, patents, trademarks, and copyrights can significantly impact a company’s value. Valuation professionals possess the specialized skills required to assess these assets accurately, ensuring your business receives a comprehensive and reliable estimates.

By demystifying the concept of business estimates and their diverse applications, this post empowers you to unlock the full potential of this valuable tool. Whether you’re navigating the complexities of management planning, seeking financing, or preparing for future changes, a business valuation can provide the insights needed to make informed decisions and ensure a bright future for your company.

Read our other blog: Building a Robust Succession Plan with Expert Valuation.

Learn more about valuations through our sister website Insight Advisory Group.

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