Importance of a Business Valuation

We have been advising all of our consulting clients to have their businesses valued. This provides a great benchmark for measuring the ultimate performance indicator of a business: what it is worth in the market at any given point in time.

Which specific valuation product you choose depends on what you intend to use the valuation for. At the base level, a valuation provides a simple market value opinion of the operation without a lot of detail on how they arrived at the result.

Other valuation products get into more detail about the operational factors they consider when determining the value. It is our opinion that you can’t have too much information when looking at what your business is worth. Many of the factors used in the valuation are controllable to a certain extent and, when adjusted correctly, can result in substantial increases in profitability which will then directly affect business value.

Ideally, one would have the initial valuation done prior to the implementation of organizational/operational changes and then again on an annual basis to measure/gauge the progress.

The cost of the valuations after the initial report are minimal as the company doing the valuation will simply enter year-end financial information that you would provide and then re-calculate a new value. This provides management/owners with a clear picture on the performance metrics that directly affect the value [and profitability] of their businesses.

Most people generally associate business valuation with the process of either selling or purchasing a business, however, it can be a powerful tool in focusing operations on those factors which make the most difference in the bottom line of any business.

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