(630) 778-7333 BUSINESS VALUATIONS – WHY AND HOW
Knowing what your business is worth is important for lots of reasons, but none more important than those that relate to your exit strategy. Whether you’re going to sell to a stranger, pass the company along to your children, enter a buy-sell agreement with a partner, offer a partnership to a key employee, or any of dozens of other contingencies, you need an objective analysis of what the business is worth to you, or might be worth to someone else. But an accurate valuation of your business is critical even to those owners who are not ready to get out. You always need an over-all understanding of where you are today in order to move the business to where you want to be tomorrow.The conventional wisdom seems to offer two alternatives on business valuations to the business owner – either to retain a specialized consultant, on the one hand, or to choose "do it yourself" methods using on-line tools. As an accounting firm working closely with exactly the kind of firms your article addresses, we offer a number of caveats relating to both approaches.
- Business owners are always better advised to spend their time using their own core competencies to enhance the business rather than spending time learning a procedure they will use at best infrequently. The cost of outsourcing always needs to be balanced against the opportunity cost, whenever you do something yourself that someone else could do, and do better.
- Do it yourself tools are doubly dangerous, because the entrepreneur may not be basing his or her calculations on sound numbers, and is not likely to be as objective an analyst of the numbers as the circumstances demand.
- In seeking a valuation as prelude to selling or transferring the business, the buyer is not likely to be impressed by numbers that were not neutrally developed by an. independent analyst.
- Just because a software solution is on line doesn’t mean it is on the level. For example, we have seen situations where the software provider may have selfserving interests other than selling software – such as searching for a certain type of business and/or working for a prospective buyer to the detriment of the seller.
- Business valuations fluctuate based on economic conditions, which are not reflected in most software application. Even if you use a packaged solution, it’s wise to bring in an expert eye to review the results.
- That expert eye needs to look not only at the visible assets but also at the invisible. Your business is worth more than its inventory and real estate.
- In choosing an outside consultant, find somebody that can empathize with your needs. As a small business owner, you want to work with someone who lives in the small business world , rather than an account exec in a giant consulting firm that usually works with much larger clients (as referenced in the article). Since accounting terminology can be tricky, you really need someone who “speaks your language.”
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