February 28, 2020  
 
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Business Valuations

 

When to Get a Business Valuation

How often should a company get a business valuation? While business valuation may not be at the top of your to-do list, it's a good idea to get a business valuation every so often.

Most business owners put valuing a business on the back burner until they decide to list a business for sale in hopes of exiting the business.

Waiting too long to get a business valuation can be a mistake.

For example, a selling business owner would do well to get a business valuation many years prior to deciding to sell a business. Doing so gives them multiple years to maximize the value of their business.

By getting a business valued sooner rather than later, they will get up the learning curve on how businesses are valued, giving them a roadmap to increase the worth of their business. This ultimately will greatly increase the money that the business owner takes out of the business when they sell. It can also lead to higher interim earnings from the business in the years that precede the business owner's exiting the business.

In addition, by obtaining an understanding of business valuation techniques, a business owner will be much wiser going into his business-for-sale negotiations. Without this knowledge in hand, it's easy to be bullied by the negotiators on the other side of the table. For example, if they say the valuation rule of thumb for your type of business is a certain (insulting) multiple of revenues, you want to be able to counter them with an explanation of why rule of thumb valuation techniques should not be used to price a business sale price.

Of course, nobody expects you to become a thought leader on business valuation techniques. But being able to talk the talk can give you a significant advantage in selling the company.

Along those lines, working with external business valuation consultants, or business appraisers as they are often called, allows you to find a business valuation firm that you like that you think does good work. You may also find some duds, firms that use cookie-cutter business valuation reports that don't add much value. If you only did a business valuation once, right before you sell, you wouldn't have the advantage of time to allow you to find a good business valuation consultant.

So how often should you get a business valuation?

It really depends on your circumstances. Business valuations can cost thousands of dollars, so it might be a good idea to get a business valuation, say, every few years.

It's like going to the doctor for a physical. It needs to be done periodically, and it's an investment that can pay off big time later on.

If you've been in business for more than ten years and have never had a business valuation, you are definitely overdue for your checkup.

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