One aftermath of the Great Recession is that many businesses have had their business values change — sometimes radically. And, it’s not always just a matter of changed earnings. Sometimes the business’s industry has altered, and investor expectations for price to earnings multiples are different. Sometimes there are simply fewer potential buyers with the financial resources to make the deal. Those who do have the needed financing can dictate more favorable terms … likely lowering the selling price.
From my experience, in most cases, after having a valuation done (whether the owner was pleasantly or negatively surprised), the business owner was glad to have the information. Business owners can spend a lifetime working in their business, but not always spend much time working on their business. And, it is difficult to make business plans without having a good feel for the value of the business.
- A buy-sell agreement is meaningless unless there is a value or valuation formula attached.
- Worry over estate or capital gains taxes is moot until the asset in question has a price tag associated with it.
- How can a key employee be rewarded for business growth if there is no baseline valuation?
In sum, for those who own businesses they want to survive, the question isn’t, “Should I bother having my business valued?” The question is, “How can I afford NOT to have my business valued?” I can’t preach enough about the importance of a business having a business valuation done. In my Forbes column, I offer six compelling reasons for having one done.
Steve Parrish is a regular contributor on Forbes.com, discussing issues and trends that impact business owners.