If someone were to ask you what your business is worth, would you be able to reply with a realistic figure? Surprisingly, you wouldn’t be alone if you didn’t know the answer to this very important question. It’s so easy to caught up in the day-to-day that business owners only tend to consider how much their business is worth if they’re looking to sell. When really every business – regardless of its size, level of growth or turnover – should have a full valuation done at the end of every financial year. An annual valuation report not only ensures a more favourable outcome if you do wish to sell; it puts you in a better position to make informed strategic decisions, maximise your investment opportunities and positively impact your retirement fund.
Decisions regarding private equity funding, investments and strategic partnerships are often time sensitive. If you’ve taken the time to conduct an annual valuation, you’re better equipped to take advantage of such opportunities as you’re already familiar with your business’ latest financial records, legal structure, and other relevant factors. Think of a valuation as your business’ resume. It offers an overview of how your business is performing in the current economic climate. And the fact that you’ve got up-to-date to hand is bound to impress potential investors.
If expanding your business is on the cards, an up-to-date valuation is again vital to your implementing realistic strategies. It gives you an accurate idea of how your business compares with competitors. And can smooth the path to securing funding from lenders and financial institutions. An annual valuation highlights any problem (or underperforming) areas you need to address before the desired growth can be achieved and enables you to time your expansion plans for best results.
Planning For Retirement
As a business owner, you’ve invested much of your time – and quite possibly your life savings – into growing your business in the hopes it will one day deliver a healthy return that allows you to retire in relative comfort. If you’re relying on the eventual sale of your business to fund your retirement, you need to know how much your business is worth now. A business valuation will give you in-depth understanding of where you currently stand financially and help you avoid any nasty surprises in the future. It will assist you in determining how much you need to generate from the sale of your business in order retire with peace-of-mind. Identifying the value gaps, puts you in the position to increase the value of your business and ultimately realise your desired retirement nest egg.
A successful exit strategy should always fit in with your business and personal goals, and as you can imagine this takes considerable planning. In this case, a business valuation is an excellent starting point, regardless of your preferred exit strategy, be it IPO, management buyout or a merger/acquisition approach. Up-to-date insight into what your share of the business is valued at gives you a clear idea of where you stand financially and positions you to achieve the best possible outcome when you decide to exit.
When It’s Time To Sell
If selling your business is a long-term goal, it’s vital you know what it’s worth and how you can boost your earnings before interest and tax (EBIT). A comprehensive evaluation not only gives you the current market value of your business but details how your business is performing in various areas. The valuation can assist in plotting future development goals and help you identify your weak points. This enables you to implement strategies to close the identified value gaps and ensure the increase of EBIT and valuation multiples, and so attain maximum value by the time you decide to sell.
An Investment to provide clarity when problems arise
Legal disputes, divorce and personal loss are issues we all hope not to face but it’s important to plan for the worst case scenario. And this means putting asset protection in place should such issues arise in the future. For example, should you suffer an untimely death would your family be able to run the business? And would they know the true value of your business if it was up to them to tie up your estate? With an annual business valuation to hand, your loved ones will at least have up-to-date financial record of your business assets. Such records can also prove useful in legal proceedings like a divorce or government initiated audit.
Purchasing a buy/sell life insurance policy typically involves each business partner taking out a policy on the lives of the other co-owners. Should one of the partners pass on, the other co-owners will each receive a lump-sum payment which is then forwarded to the deceased's surviving family members. Having an up-to-date business valuation is crucial in such a circumstance. And would be required by the insurance company in order to ensure your loved ones receive a fair payment.
As you can tell from the valid points listed above, conducting an annual business valuation is vital to the successful running of your business. Each business is unique and its value can fluctuate with changing market conditions. A thorough business valuation can give you valuable insight your business operations and overall financial performance. It can help to identify key growth factors so you can focus on implementing strategies that will boost your business’ value.
Want a valuation for your business? Contact SMART Business Solutions today to learn more about how you can improve your EBIT and grow the value of your business.
Want to grow your business & improve cash ﬂow?
You need SMART solutions for YOUR business, not just annual tax compliance! Get the SMART team working with you. Call SMART Business Solutions today on 03 5911 7000 or email@example.com.
ONLINE Webinar Session
27 July // 1:00PM
There are a few changes earmarked for superannuation commencing 1 July 2021. These changes will impact both employers and employees. Read the details here to know what's expected.
If you have a home loan, there are many reasons you may consider refinancing. That could include wanting to borrow more, access different home loan features or simply to get a better interest rate. We explore the more common reasons for refinancing, including a few you may not have thought of.