WHY VALUE YOUR BUSINESS?

Every business owner should know the worth of their business, as it measures their past, present and future. Valuation is the single most important concept in finance and it’s vitally important as a business owner to have some knowledge on the matter. At the end of the day, each entrepreneur has a goal to create value.

It goes without saying that every business is different and therefore every business valuation will be inherently different. Of course there are many reasons to value a business: you could be considering a sale and would like to confirm that what you believed your business to be worth is realistic; in the event of the death of the owner / a partner, the business needs to be valued for purposes of the deceased estate; for purposes of succession planning the business value needs to be determined (akin to a sale); for purposes of a management buy-out a business value needs to be determined; and so on.

Irrespective of whom you are or what business you are in, it is imperative that you as the business owner (or joint-owner) must be aware of the value of your business for two reasons:

1. As much as you are in business to make money; create a lifestyle and provide for your family, as an individual you should also be striving to create wealth. Your business is probably the largest asset you have and would therefor make up a considerable part of your Personal Wealth.
2. As you work to increase your wealth, it makes sense to focus your efforts on those elements of your Personal Balance Sheet that can enhance your overall value and that you have some measure of influence over. Your own business is such an asset. So being able to value your business from time-to-time is necessary, and understanding what efforts will increase your business value is imperative.

Obviously, if you are selling your business, valuation is extremely important. However, valuation can and should be used as a powerful tool for managing your business, it can assist you in having a holistic view of your business and make decisions that are highly impactful for your bottom line. It allows you to understand the subtle dynamics of your business and avoid unforeseen consequences of seemingly reasonable decisions.

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This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)