Valuing a business annually has many great benefits to companies of all types and sizes. Having this expensive process completed on your business once a year might sound like kind of a rip off, but it’s actually worth every penny to stay up to date on the value of your business because you never know what could happen at any given moment in the business world.
Valuing a business annually means that you will be able to track the performance of your company on a regular basis. You can use this information to improve those performance figures in the future and get an idea of what aspects of your business you need to improve. Your shareholders will also thank you. Having up to date valuation records assists those shareholders that want to sell their shares off don’t have a buy-sell agreement to work from. They’ll be able to clearly see what their shares are worth and estimate the potential future worth of them based on past valuation results.
Many business owners elect to have an annual business valuation for estate planning purposes alone. This protects the wealth of any heirs and keeps the company ready just in case something happens to the owner. It also helps to have up to date figures of value handy and a solid record of past years as well in cases when you need funding for a business. This increases the likelihood that a bank or investor would be willing to lend you money to take on new endeavors and further increase the profitability of your business.
An annual business valuation will take two types of value into account- Enterprise and Equity Value. Enterprise value is the value of the invested capital of the business. This means the equity as well as the liabilities of the business including cash, fixed assets, receivables, inventory and goodwill. Equity Value is this enterprise value sum minus all for the liabilities of the business. This number is what tells a shareholder how much their shares are actually worth over time.
An appraiser’s definition of value may change depending on specific economic and industry related circumstances, but it’s not really a good idea to conduct a business valuation by a rule of thumb. There are just too many different fluctuations and differences from business to business so you can’t hold them all to one standard. A rule of thumb can be used as a guide so an appraiser has a list of guidelines to follow, but they have to expand their valuation in terms of the specific aspects of each business.
No matter what type of business you own, it’s important to understand why an annual business valuation has its rewards to your business.
