We’re nearing June 30 (the mid-year marker), which is a very smart time to move into a different gear in examining your business’s financial situation.
Because, like the good business owner that you are, I’m sure you kicked off Q1 with a bunch of exciting goals and objectives for 2023. So, now that we’re nearing the end of H1, it’s a good idea to check in on those goals.
Consider how you’re feeling about your business right now. Are you making progress toward the growth you initially envisioned? Or are you growing in ways you didn’t anticipate?
And don’t forget about all those valuable business and client relationships. Measure those too.
Take some time to reflect. If your business isn’t quite on the path you intended in Q1, it’s not a crisis. Adjust. And I’m here to help you do that:
Doing regular checkups on your Lynnwood business means you can find a firmer footing as you move ahead. It’s one of the reasons I am continuing to address business valuation and why you should consider it.
Today, let’s dive more into when said valuation would be really helpful to have…
When Your Lynnwood Business Might Need a Valuation
“People know the price of everything and the value of nothing.” – Oscar Wilde
Your business will have many milestones when you’ll have to know how much it’s worth. What are some?
Last time, we looked at how a business valuation examines your company’s assets and liabilities, earnings potential, management, and assets’ value. When done right, valuations are expensive for even such non-litigious purposes as a sale, a merger/acquisition, or an owner’s exit. You might still need a valuation of your business in situations you haven’t thought of.
You want one ready when the time comes. Let’s look at the why and the when.
We business owners know that buyers and sellers entertain wildly different ideas about how much something is worth. The first and obvious occasion where you’ll need a valuation is if you’re planning to sell your company, especially if your company is worth more than similar companies in the same market. You’ll need an accurate starting point for negotiation which allows you to sift prospective buyers faster.
This can also be important when you’re planning to exit your company – whether you’re thinking of selling soon or several years from now, it’ll help you to have a solid idea of what your business is worth.
Looking ahead, if you’re like most business owners, your business constitutes a lot of your personal net worth. Knowing your equity in your company as far ahead as possible makes the planning of taxes and retirement (if you are retiring) easier.
- Normally valuations are complex – and, as we mentioned, expensive – written documents. Early in the sales process, though, you may only need a verbal opinion of value, a generally cheaper, temporary option that you’ll also want from a professional appraiser (such as a broker or a CPA) looking over your financial statements.
- If you think the sale will be a long process, you’ll want to incorporate figures of current and potential earnings. One way is a discounted cash-flow analysis, which looks at your business’s projected annual cash flow discounted to today’s value using a net present value. You can find an NPV calculator here for investments to give you an idea of the process. For other methods of projecting your company’s value, we’re happy to explain more.
Getting a loan from a bank or capital from investors is another time a valuation comes in handy. Beyond lending you credibility, a documented and objective measure of your company’s worth, strengths, and future will usually speed up the approval process.
(By the way, the more substantial the credentials of the appraiser who did your valuation, the more seriously a lender or investor will take your valuation.)
If your company looks for a loan through the U.S. Small Business Administration, you can perform your own valuation if you look to finance a quarter-million dollars or less. You do need “an independent business valuation from a qualified source” for greater amounts or “if there is a close relationship between the buyer and seller,” such as deals between family members or business partners.
Litigation: A document that you want to stand up in court for divorce, a lawsuit, or a partnership dispute must be excruciatingly detailed. Your valuation will be used in discovery, and there may be legal requirements regarding its type and depth.
Expect to pay more for this kind of valuation – and make sure to have it done by the most experienced and credentialed valuation expert you can find and afford: That professional’s credentials will have to stand up to a dispute in front of judge and jury.
Company initiatives: Nothing helps you know where you’re going better than knowing where you are. A complete valuation helps you plan your company’s sales and operational initiatives for the future.
Clearly, biz valuations can help you in many situations. But how can you make sure you’re getting the best one for your money? We’ll help you out with that next time.
I’m here to help with whatever your Lynnwood business needs, whether it’s talking more about setting up a valuation or analyzing your financial data to make sure you’re on track to reach your business goals this year.
In your corner,