If I asked you today what your business is worth, what would your answer be? If its ‘umm’ or ‘err’ don’t worry you’re not alone! Many business owners do not know the true value of their business even though it is a critical prerequisite to making major business decisions, entering into new transactions or even funding retirement.
This is where business valuations come into play. So what exactly is a business valuation?
Put simply, a valuation is an estimate of a fair price at which parties are willing to exchange an asset. This estimate must take into account any risks and expected returns. In the case of a business valuation, the ‘asset’ is the business.
Our clients come to us at different stages of their business lifecycle for valuations. The most common reasons include:
- Buying or selling a business – If you are preparing to buy a business or sell your current business it is important that you obtain a valuation to use as a starting point for your sale negotiations. It also provides the seller or purchaser with an understanding of what the business is worth.
- Restructuring your business – if you are looking at changing the legal structure of your business you will need to obtain a valuation. This valuation is required for determining the transaction value, as well as assessing stamp duty and capital gains tax obligations relating to the restructure.
- Shareholders Agreements & Key Person Insurance – Do you have appropriate protection in place should an unforseen event occur? A business valuation can help you ensure you have adequate insurance in place should you need to exercise any rights or obligations in your shareholders agreement.
- Monitoring and improving the value of your Investment – Are you getting the return you expect from your business? Is your investment value growing? A business valuation can answer the question “Is my business worth what I think it should be?” If the value falls short of your expectations NKH can assist you with strategies to improve your business value.
- Succession & Retirement Planning – Are you relying on your business to fund your retirement? Small to medium sized enterprises and family owned businesses must ensure they have a viable strategy to exit the business when the time is right. A valuation is a key starting point in ensuring your business will provide you with a stress free retirement.
No matter which level your business is at, having an understanding of what your business is worth is vital. If you are thinking about any of the above, or haven’t had your business valued in a couple of years then it’s time to speak to one of our valuations experts.
Written by Heather Moore