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Why Business Valuations Matter

Business valuations serve purposes beyond helping you to sell your business. Here is why they matter.

Business valuations are vital if you are selling your business

This might seem obvious, but so many business owners try to sell their business based on their own valuations. Quite often, they’re offering their businesses for sale for a price that’s too high, which will scare away potential buyers, or for far too low.

A proper business valuation will take all things into consideration, including the value of assets like buildings, equipment, talent, and customer lists, as well as the direction of the marketplace you are involved in and how valuable it is set to become. This is important, as many people looking to buy new businesses are looking to swallow up opportunities with potential in emerging marketplaces.

If you are thinking of selling your business, you absolutely need a proper valuation from an expert.

A business valuation will give your stakeholders and investors a more realistic idea about the value of your company

Stakeholders and investors are vitally important to your company and you want to make sure they know how much your company is worth. Not only do you owe them this as a matter of duty, but it also means they’ll know whether they need to intervene and help, or whether sitting back and enjoying the fruits of their investment is a better idea.

Whatever the state of your company, it is very important you keep stakeholders and investors up to date on its valuation so that they can make decisions about what they want to do with their slice of it. The last thing you want to do is shock them with a surprise valuation, as this might lead them to take knee-jerk action.

Clearly communicate the value of your business with your stakeholders and investors, and do this by commissioning a robust and accurate valuation once every few years.

Business valuations help staff understand the progression of your business

Perhaps your most valuable asset is your talent. But if your talent doesn’t know the value of your business and its trajectory over time, how are you going to convince them it is worth sticking with you?

Employees appreciate transparency, and one of the easiest and best ways to be transparent is to tell them how much your business is worth. Over time, this gives them a great overview of how your business is progressing and, so long as things are moving in the right direction, it will encourage them to stay.

Business valuations will help you with mergers or acquisitions

If you are thinking of merging with or acquiring a new company, a business valuation is going to be vital. You will absolutely need to be able to explain the value of your company if you are thinking of merging with another company, and the company you are merging with will want to know how you reached that valuation. You should absolutely request that any company you are thinking of striking a deal with has paid for a proper valuation, too.

If you are looking to acquire another company, you want to make sure you are paying a fair price for it, so you should make sure that the company you want to buy has paid for an official and robust valuation, so you can make sure you are negotiating correctly and fairly.

How do I get a business valuation?

The best way to get an accurate business valuation is to pay a professional to pull together a business valuation report on your behalf. A professional will know what they need to take into consideration when valuing your business, so this is the best way to make sure that you are getting an accurate valuation.

If you already have a qualified chartered accountant working with your company, they might be able to help you to do this. If not, your first step should be to find one. If you do proper bookkeeping, reaching a conclusion about the value of your business should not take too much time.

If you don’t keep proper books, things might take a little longer. You will probably have to spend some significant time with your professional figuring out the worth of your company. In this case, it might cost you more to do it. Our advice would be to keep on top of things from then so that you can keep costs low for any future business valuations.

If you are thinking of merging with or buying another company, you should ask for an in-depth valuation report from a credible source before you make any offers. If you’re in any doubt about the valuation report you are given, consider commissioning a business valuation of the company you are considering yourself. You might think this is a waste of money, but you’ll waste considerably more if you buy a company that was grossly overvalued.

If you’re thinking of making a major organisational change, Yorkshire Change can help. Call 0333 090 8710 to speak to a dedicated member of our team.

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