What is a business valuation?
A business valuation is the process of determining the economic value of an owner's interest in a company. A business appraiser will collect relevant information about your company, taking into account your assets, income and the market you operate in and analyze it. A business valuation doesn't just look at past performance however, it also takes into account future opportunity.
There are many nuances to a business valuation and some would say it's just as much of an art as it is a science. It's also important that your business appraiser works with you to learn as much as they can about your business operations. This helps them provide the most accurate assessment possible. Business valuations are an important part of many business operations, some of which we'll discuss below.
Why perform a business valuation?
There are many reasons a business would choose to perform a valuation including:
- Business expansion
- Estate planning
- Settling disagreements between
- Identify weaknesses in the business
- Opening credit lines
- Funding a buy-sell agreement
Let's take a look at a few of these and expand on them a bit further.
Business valuations are an important part of processes like mergers and acquisitions. If you need to raise capital for your business, you will likely be asked to perform a business valuation as well.
Your business is probably your most valuable asset and if you plan to pass it on in some way it's important to know exactly how much you are worth when doing estate planning. Business valuations help determine the exact value of your stake in the business and help make sure you're in full compliance with current estate tax laws.
Opening Credit Lines
If you want to open a new line of credit for your business, you're going to be required to perform a business valuation. Even if you aren't planning on opening a new credit line, a business valuation is a good way to strengthen your banking relations and help your bank fully understand your business.
Funding A Buy-sell Agreement
Buy-sell agreements are another important aspect of your business that we've discussed before. We've also gone over how you can fund a buy-sell agreement with life insurance. If you do choose to fund the agreement with life insurance, a business valuation is necessary to make sure you purchase the right amount of insurance to keep your business running.
At Summerlin-Roberts we perform a business evaluation with you, not for you, learning everything we can about your business in order to be as precise and accurate as possible. Please, contact us at Summerlin-Roberts today to learn more about performing a business valuation on your company.