Many small business owners have extensive knowledge about their companies, but they often lack an understanding of a critical fact – the true value of their business on the open market.  Business valuation, the process of determining the actual worth of a business, is important not only for owners looking to sell but also for potential buyers and strategic planning purposes.

A formal business valuation is essential for sellers and prospective buyers as it helps determine if they are interested in selling or purchasing the business.  It provides a comprehensive overview of the owner’s interests and operations, validating financials and other documentation.  Buyers use this tool to determine the amount they are willing to pay, while sellers can confirm the valuation and selling price of their business.

Despite the benefits, many business owners are unsure of what to expect during the valuation process. Valuations can sometimes uncover areas of the business that reduce its value, such as weak financial and accounting controls, under-performing assets, and weaker operating ratios compared to peers.  The valuation process also reveals the strengths and weaknesses of the reviewed company.

For future sellers, having an idea of how buyers and banks perceive the value of their business is crucial. This helps them decide whether to sell and at what price, as well as guide their efforts to increase the value.  Other reasons for small business owners to consider a valuation include evaluating acquisition offers, resolving tax disputes, determining assets in a divorce and buying out partners.

Bravo Kilo Advisors offer certified business valuations conducted by certified valuators who adhere to recognized valuation standards. These valuations consider a variety of factors over time to determine the business’s value, rather than focusing on a single moment in its history. The cost of a valuation typically starts at $7,500 and varies based on factors such as company size, equipment, quality of earnings and future earnings potential.

While many owners have a rough idea of their business’s worth, it is usually based on guesswork.  Over time, relying on guesswork can result in costly mistakes, such as selling the business for less than its true value or paying excessive estate taxes. Therefore, investing in a business valuation is a wise decision.