Buying a Business

Why Understand Business Valuation

Written by Bobby Jan for Gaebler Ventures

What is my business worth? It's a common question for entrepreneurs, and there are several occasions when you might need to be able to answer the business valuation question. This article introduces some of reasons for determining the value of a business.

Any entrepreneur worth their salt must understand something about business valuation as it is important for buying and growing businesses.

Why Understand Business Valuation

The following are some of reasons for determining the value of a business.

Selling and Buying Businesses

Don't simply leave valuation to the professionals. Serious entrepreneurs must be able to recognize a good or fair deal. Value should be the most fundamental consideration when it comes to buying and selling businesses.

To Borrow Money

When you borrow money, sometimes a portion of your business must be offered as collateral. It would be wise to understand the value of your collateral to ensure that the terms of the loan reflect its true value.

For Insurance Purposes

Business valuation is important when determining the insurable value of assets. It is also important for obtaining fair settlement from insurance companies.

Designing Buy-Sell Agreements

Since buy-sell agreements often specify a price or a procedure for determining price, a working knowledge of business valuation is essential.

Employees Stock Ownership Plans

Employees Stock Ownership Plans, or ESOP, has many benefits over cash payments. Correctly pricing stocks, which comes from correctly valuing a business, is essential for an effective ESOP.

Cheng Ming (Bobby) Jan is an Economics major at the University of Chicago who has a strong interest in entrepreneurship and investing.

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