By: Ross Powell, CFP and Josh Hargrove, CFP
You've built a profitable business, but what's it really worth? Someday you'll be ready to step off the proverbial bus - transitioning the business through sale or gift. Let's explore some elements of a critical component of that decision - the Business Valuation.
─
What is business valuation?
Business valuation is a way of knowing how much your business is worth. Each business is unique in its niche, and so business evaluation is much more complex than valuing a home or a stock portfolio.
Why should you get one?
Reasons range from the obvious (knowing how much to sell your business for) to more specific occasions, such as exit planning. If a co-owner wants to sell his share of the business, knowing the value of the business can help facilitate this process between the owners. You might also want to get your business evaluated if you seek investors in return for shares of your companies (think Shark Tank), or it may even be driven by life insurance.
When should you get one?
The most likely time to get your business evaluated is right before a change in ownership, such as selling your business or buying out a co-owner’s share. In general, you want to have an idea of how much your business is worth every 1 to 3 years.
How should I get my business evaluated?
For more informal evaluations every 1 to 3 years, certain accountants and financial professionals can evaluate your business for little to no cost. This will give a range of which your business likely falls within. For more formal evaluations, business brokers can help you buy and sell business, and will evaluate your business for you, although it will be more expensive. More market specific, niche evaluators will also be more expensive.