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Why should your business be valued annually?

Posted by Admin Posted on Oct 05 2017

Business valuations tend to be overlooked by business owners until there’s an immediate need for one to be performed. A business valuation is a process and a set of procedures used to estimate the value of an entire entity or an owner’s interest in a business.

Some common cases where a business valuation is necessary include:

  • To set a basis of value for a business when no valuation has been previously performed
  • To understand the value (worth) of the business
  • To evaluate an offer and negotiate a strategic sale of a business
  • For exit strategy planning purposes
  • For shareholder or partnership disputes
  • For shareholder or partnership investments or buyouts
  • To obtain financing
  • For estate tax reporting purposes of a decedent
  • For gift tax planning purposes
  • For divorce litigation purposes
  • To identify whether the business is growing, stagnant, or declining in value

As you can see, there are many scenarios in which a business valuation is called for, and plenty more in addition to the ones that are listed. When one of those situations arise, you will be advised to have a business valuation performed.

However, what if you as an owner decided that you’d like to value your business annually? What if you already had a solid indication of what your business is worth before that immediate need? The last common case from the list above is highlighted for a reason. Doesn’t it seem like a business valuation, especially on an annual basis, would help you identify whether your business is growing, stagnant, or declining in value?

Over the course of a year, many changes can occur within a business, the economy, and specific industries. When trying to grow a company, it is imperative that business owners understand how these dynamic forces impact their business’s value. In addition to changes that are considered “out of an owner’s control,” monitoring how internal decisions within the company changed the value of the overall business is a must. Measuring progress on an annual basis by reviewing the changes of a business valuation allows owners to adjust and continue operating at maximum efficiency.

Owners tend to get bogged down in the daily operations of their business, and rightfully so! Running a business demands an extreme amount of time and energy – so the question is, why not take a step back once a year and make sure your efforts are adding value?!

Our firm prepares business valuations for companies of all shapes and sizes, and we would be happy to help any business owner get a better understanding of what their number one asset is worth! 

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