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Your Business’ Market Value

November 29, 2012

The true market value of a business is only determinable when it is sold – and even then it is only for that time with that buyer.  However, there are methods of valuing a privately owned business that can provide valuable insights to the owner.

 

A business is an important asset of the owners – it provides their living, independence, a degree of financial security and if properly handled, a payout when the owners are ready to retire.

 

Running a business forces owners to make dozens of decisions daily, many times without much advance thought and consideration.  Unfortunately, it can become easy to lose perspective.  Having the business objectively valued provides a look into how others would view the business and the size and scope of the asset that has been created.  I believe these are the best reasons to have a business valued, even when there are no thoughts of selling or any other reasons compelling the valuation.

 

The process of having the business valued provides benefits far greater than the nominal cost.

 

  • Creates a bigger playing field for the owner to use to assess the results of their decisions
  • Shows how value can be created and can provide direction toward that
  • Can show how an initial cost can be recouped by creating a much greater value to the company
  • Places the owner in a position to measure the business in terms of value creation and not on the immediate profit from a transaction
  • Identifies value drivers
  • Can help owner better recognize strategic valuation issues
  • Can possibly uncover areas of the business that can be exploited for greater current profit as well as long term growth
  • Creates a vaster vision for the business.

 

The appraisal also places the business’ value in perspective with the reality of how the business would be perceived by potential buyers – this is sometimes an eye opening and humbling experience.

 

And finally, knowing how value is created – and tracking it – can help the owner better run their business.

 

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