A business valuation is one of the best tools you can use whether you are buying, selling or expanding. So, how can a business valuation help you? We tell you here.
This article is published by Modoras Accounting (VIC) Pty Ltd ACN 145 368 850
Why do a business valuation?
Whether you’re buying, selling, or just in the midst of getting business done, a business valuation can be a helpful tool when making decisions about your own business, or one you’re thinking about buying.
A business valuation is a way of measuring up the tangible and intangible assets of a business to come up with a realistic estimate of its value. These valuations are a little different to ones conducted on property and require the services of qualified professionals such as an accountant and business advisor to provide a comprehensive and accurate report.
In your business life, there will be many times when you’ll need a valuation. Here’s a few of those situations and how a valuation can help.
Buying a business – Know you’re paying the right price
Think of a business valuation as an integral part of the due diligence you’ll undertake when considering a business purchase. It’s your opportunity to get an accurate view of what’s going on in the business and how that translates into the vendor’s asking price. Having an independent valuation puts you in the driver’s seat when it comes time for negotiation.
By letting an expert take a good look at the books, you’ll then have parameters around your expected rate of return and whether the business is a worthy investment. You’ll also receive specific industry insight to further assist your decision making.
A business valuation may also give you answers to questions you didn’t even think to ask!
Selling a business – Realise the true value of your hard work
As humans, we’re emotional beings and like it or not, these emotions can creep into business decision making quite easily. And it’s okay to have a bit of emotion in business – after all, this is real life – but when it comes to determining a sale price for your business, it can be helpful to have the numbers there in black and white when making your decisions.
Hitting the market with a price that is too high or too low can be a problem when it comes to gathering interest from potential purchasers. A business valuation helps take the emotion out of your sale price and base it on a considered calculation of your current business performance.
A valuation helps you feel confident that you’re selling at the right price point and helps you to know where your limits are. This should place you in a better (stronger) negotiating position.
Preparing a business for future sale – Early preparation is key
If you’re a business owner that has a plan for selling in the future, early preparation is the key to giving yourself the best opportunity at getting a price you’re happy with. And a business valuation is a smart way to kick off your planning.
An early valuation can give you an indication of how your business is travelling right now. Ideally, you should start this process two to three years from the time you’re considering selling. This insight allows you to see the steps you need to take to enhance the selling price for future sale.
Business expansion – Unlock equity with a valuation
If it’s time to expand and you’re looking for a capital injection, your lender or investor will need to know what your business is worth to help with their decision-making process.
By having a business valuation readily available, you will also be well informed about the intricacies of your business’s performance to assist in discussions and gain a favourable assessment on your funding request.
So, what’s involved? How do I value my business?
Business valuations are undertaken by professional business advisors and accountants. There are a number of ways a business can be valued, and the type of valuing process used will depend on a number of factors. We have more information about how to come up with a value for your business here.
Your business advisor will require comprehensive information about your business to accurately assess its value. This will include information about:
- Business structure
- Business history
- Any legal concerns
- Market or industry conditions
Ask questions. Get down to the nitty-gritty of the valuation report
The process doesn’t end when you have the valuation in your hand. Speak to your business advisor and discuss what the findings of the valuation mean for your particular situation. Take advantage of your advisor’s insight and industry knowledge to get the best outcome for you and your business.
Talk to us about our business valuation packages so you can be on the front foot when making decisions about your business.
IMPORTANT INFORMATION: This blog has been prepared by Modoras Accounting (VIC) Pty Ltd ACN 145 368 850. The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individual's personal circumstances have been taken into consideration for the preparation of this material. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Accounting (SYD) Pty. Ltd. recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog can change without notice. Modoras Accounting (VIC) Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Accounting (VIC) Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Accounting (VIC) Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication. Liability limited by a scheme approved under Professional Standards Legislation.
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