What is a business valuation and why every business owner should undergo one regularly
It’s not uncommon for people to confuse a business appraisal with a business valuation. While both are similar, a business valuation is far more thorough than a business appraisal.
To put it simply, an appraisal is an estimate of what the business will sell for at that point in time. However, a business valuation involves a whole lot more. A business valuation provides an owner with a quantifiable number of its current value by way of a comprehensive assessment of operations, capital management and comparison against similar businesses within that industry.
To learn more about the difference between a business appraisal and a business valuation, read this blog.
What are the processes involved in a valuation?
There are multiple methods when it comes to valuing a business. Below are commonly accepted valuation methods:
- Capitalisation of future maintainable earnings
- Net tangible assets
- Cost to create
- Discounted cashflow
- Return on investment.
Why you should undergo a business valuation regularly
There are many situations when a valuation is required, these can include:
- Predict the value of their company on the open market
- Preparation for future personal financial planning and or retirement
- Divorce or family law settlements
- 3rd party opinions when buying a company
- Internal buyouts between owners
- Capital financing decisions for future company growth
- Performance review and business health check.
Undergoing regular valuations will help business owners monitor the ‘health’ of their business. Conducting ‘health checks’ on your business will ultimately allow you to better understand the inner-workings of your business and your position in the market, and will enable management to identify ways to increase value over time.
It’s not uncommon for business owners to get caught up in the day-to-day tasks involved in running a business. More often than not, this can get quite distracting and the bigger picture can often be forgotten about.
Stepping away from these day-to-day tasks and taking the time to analyse your business regularly, is critical for business growth. However, we understand that as a business owner, you need to wear many hats to ensure your business is running smoothly. Because of this, you lack the time to step back and analyse. This is one of many reasons why it is beneficial to get a third party involved.
Not only will it save you the time and energy, but by allowing a fresh pair of eyes to analyse your business from an outside perspective, you will find that a valuer will discover certain errors or inconsistent processes that you perhaps would have overlooked. So, not only will a valuation unveil “blind spots” in your business but it will also highlight any inefficiencies and limitations that could be preventing your business from progressing and growing.
Once a valuation is conducted and you receive the documentation from your qualified valuer, you can make changes to your processes accordingly to increase your market share in your specific industry.
Want to have your business valuated?
Benchmark Business Sales & Valuations have Registered Business Valuers working in Queensland, New South Wales, South Australia, Victoria and Western Australia. With many years of experience and training, the team has local knowledge and understanding to assist you with appropriate and accurate market-based business valuations and appraisals.
To find out more, click here.