Doing the Math on your Most Valuable Asset

A recent survey of small business owners found few who knew their business valuation.

Of the small businesses polled by M&T Bank in the last two years, 2% knew how much their company was worth. Given that for most business owners, their company is usually their most precious asset, this statistic is incredibly disheartening. What's even more daunting about this is the amount of money business owners continually leave on the table each year they don't do the math on their business.

A valuation is a valuable tool for any business, whether big or small. A valuation can help you understand your business' worth and make better decisions. Let's discuss the importance and why every business should have a valuation this year.

Frequently, small business owners are unaware of how much their enterprise is worth, which can be very dangerous. We've seen this a ton with many of our clients, and we see more surveys with similar findings each year. So why don't more owners know this significant value?

Think of it like this: People whose home is their primary asset want to know what it is worth. If you open up a brokerage account, you want to know how much it's worth. You'd never give your money to a financial advisor who told you to trust them while they invest it and never report back to you on what it's worth. Just because your business is not liquid wealth doesn't mean it's not real wealth.

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Properly valuating your business is key to successfully running and selling it.

Some business owners may be deterred from a company valuation due to the overwhelming feeling that day-to-day operations bring. Additionally, others might not want to spend money on the process or are unaware of its importance.

A valuation is often crucial for raising capital, insurance coverage, or estate planning. They can also be necessary for immediate concerns like implementing a buy-sell agreement or preparing for business funding. Or, say for example, if you want to give company shares as a gift to a relative,? it would be crucial that you understand the company's value for tax and estate-planning reasons. The business valuation can also serve as a checkpoint to ensure that any business partners are on the same page. Even if you have a contract that outlines how much your business is worth, there can still be disagreements over this worth when it comes time to sell. By accurately anticipating the company's value as it progresses, owners can avoid a messy and lengthy battle over the business' worth if they need to separate.

It's also worth considering if you plan to sell your business. It's critical to know its worth so you'll be prepared. Without a current business valuation, you'll likely calculate your company's worth by guessing (and you know what they say about assuming). If you're not careful, you could end up overestimating or underestimating your business.

In our 25+ of consulting, we've often noticed many business owners are only aware of the value of their company once they're already in talks with a potential buyer, which is way too late.

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Certified experts can provide an accurate valuation for your business.

At Strategy Leaders, we've been helping business owners get accurate valuations for over 25 years. Our mantra has always been this: Trust your accountant to calculate your EBITDA. Trust Strategy Leaders to help you understand the valuation approach for different purposes.

When it comes to valuing the business, there is no right number or formula. One of the most common valuations is based on EBITDA, or Earning Before Interest, Taxes, Depreciation, and Amortization. Most small businesses still need to set up their books to reflect EBITDA. That's because they are practicing tax accounting instead of business accounting. Maximize sale value by working with a business advisor or analyst to switch to business accounting sooner rather than later.

And, of course, hire people to help you assess and strengthen the business. Test out legal, financial, and investment advisors with experience doing deals. Get the team working together well before it’s time to sell - or whatever plans you may have for the business.

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The amount you pay to have your business valued will depend on various factors.?

The price for a business valuation can vary greatly depending on the size and complexities of the company, how much work is needed, and what the goals or objectives of the valuation are.

An appraisal could cost as little as $5,000 or upwards of $50,000, depending on the parameters. To get the most accurate estimate possible, be specific with the appraiser about your reasons for requesting a valuation.?

Our valuations range from $2500 to $5000, depending on the scope and needs of the client. Our Owners Value Report is a 30+ page report which gives our clients the value of their business using four distinct and valuable estimates of value: Asset Value, Equity Value, Enterprise Value, and Liquidation Value. We understand that every company is not a one size fits, so we adjust to get our clients the best and most accurate valuation possible.

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Update the value of this asset regularly to stay ahead as a business owner.

Depending on why you need it, a valuation can be something you do yearly or every few years. You can also do this more frequently when starting and growing your business to asses if the value has risen or not.

Reassessing a business's value regularly can help you pinpoint areas that need improvement. So don't get hung up if the valuation process shows that your business isn't worth as much as you'd hoped! You can use the insight gained to increase the value, and it's also helpful for general planning purposes.

Here is your chance to get a valuation for your business this year! We're happy to help you through this process. Contact us to start a well-needed conversation and get your valuation questions answered!