DISCUSSION OF SOME OF THE REASONS FOR VALUATIONS

1. Selling Your Business

Business Valuation is Critical Before Sale or Purchase of your Business.
There are two major factors that will determine the value of a business: the appraised value of the assets at the time of negotiation and future expectations of profits and return on investment.
For a clearer picture of a businesses future potential, interested parties need to consider factors such as trends in sales and profits, the capitalized value of the business and the expected return on all tangible and intangible assets. Such projections are not easy, but can begin with the preparation of projected profit and loss statements
In privately held businesses the typical financial statements are prepared with the objective of minimizing taxable profits as much as legally possible. The Profit and Loss statements have to be “recast” or “normalized” to reflect all the operating profits of the business. The Balance sheet has to be revaluated to reflect current market value of the business’s assets.
Point to Remember – Avoiding a few well spent dollars up-front, can lead to a very expensive hind-sight!

2. Buying a Business

How good a deal is this business? It could be a bargain that you should act fast. If it is overpriced, the easiest way to have a seller reduce his price is to have a professional valuation that supports the price you want to pay.
Point to Remember – Having a professionally prepared business valuation will help you avoid a very costly mistake and help you negotiate a better deal!

3. Writing and Following Your Business Plan

Why do you have a business? The purpose of a business is to build wealth through the creation of a profitable enterprise, to achieve your goal; you must have a business plan. Money is how you keep score! It is fulfilling and satisfying to have a successful and profitable business. The ultimate satisfaction is when you sell your business for that big dollar and retire or do something else. To do that you need to build value, regular valuation of your business will keep you on track.
The most important part of your business plan is to plane for the appreciation of it’s value. The future and growth of your business will determine good deal of what your business will be worth in 2 years, 5 years or beyond. There are many other factors that will determine the market value of your business at any given moment in time.
Successful businesses monitor the value and growth of their business regularly. Every part of your business plan must increase the value of your business. Regular business valuation is the only objective way of monitoring your success.
Points to Remember –
1. Next to your sales and profits, the value of your business is the most important number to watch.
2. Determine the value of your business at the beginning of your business plan; check it again at regular intervals. Comparing your progress with your goals is a simple but essential rule for success.
3. As you do with your financial statements, keep record of your annual business valuations, and compare it against previous years.

4. Applying for a Business Loan

A lender’s willingness to extend the credit you desire is based on the business’s to cope with the loan repayments, the merits of your financial statements, your business plan and the market value of your business.
Point to Remember – Having a well prepared and supported valuation of your business greatly increases your chances of getting the business loan you want!

5. Divorce or Partnership Break-up

You will be placed at a great disadvantage, if the value of your business is determined by the attorneys of your adversaries. The adversary could be your soon to be ex-spouse or ex-partner. There is every possibility that you are cutting yourself short possibly by hundreds of thousands of dollars or more.
Point to Remember – Failure to value your business leaves you wide open to being cut short by your adversaries!

6. Attracting Partners or Investors

Just like when you want a business loan, to attract partners or investors, they will want to know what it is worth to them.
If you have been monitoring the value of your business over several years, and kept a record of your past valuations, you will be able to show your potential investor how well you have met your goals for growth.
They will also want to know about cash flow and the return on your existing investment so they will have confidence to join or invest with you. This is easily demonstrated with the Business Valuator.
Point to Remember – To get top dollar and terms from potential investors, keep a record of your past business plans and previous years’ professional valuations in addition to your financial statements.

7. Determining the amount of insurance you need

Your liability, casualty, and other insurance needs should take into consideration the value of your business. This will also help you when making a claim against losses. Also business continuation related insurance policies should take into consideration the value of your business.

8. To plan your estate and write your will

In estate planning situations, tax consideration, and establishment of various trusts, it is necessary to establish the value of your company, present and future in order to transition your business to your heirs intact.