10 reasons to perform a company valuation

November 10th, 2016 Chad Lindgren
chad lindgren, small business, midwestone bank, company valuation

Do you know what your business is worth?

Your local assessor’s office knows what your house is worth. With just a few clicks on the Blue Book website, you can find out what your car is worth. You can easily find the value of your mutual fund. Why, then, is it so common to come across small business owners who have no idea what their business is valued at?

Most business owners will get a business valuation when they decide to sell the business, but it makes good business sense to have a current valuation on hand at all times. Here are a few reasons why:

  1. Something could happen to you or the other owners of the business. And that could mean a major change in the business. If someone were to pass away, having a current valuation would help the family deal with the sale and/or dissolution of the business.
  2. Business values go up and down, and even if you had your business valued only a year ago, it probably won’t have the same value today.
  3. You never know when opportunity comes knocking at your door. You may find yourself in a situation where selling or merging your business becomes the best option for you. Having an up-to-date business valuation allows you to take advantage of opportunities.
  4. Due to a variety of reasons you may want to add a new partner to your business. In order to do that, you’ll need to know the value of your business to determine the cost of buying-in.
  5. A partner or shareholder may want to exit the business. Knowing the value of your business will be necessary to determine how to best divide it up.
  6. It is very useful to have a previous business valuation to establish a benchmark against which to compare the value of the business before and after a disaster.
  7. If you’re just starting your business, you will need to value your company to determine how much of it you’re willing to give to investors in return for seed money.
  8. On the flip side, if you are more established, you will likely have to report to investors or other stakeholders on a quarterly or annual basis. Providing regularly valuation reports is a good habit to get into.
  9. You’re looking for additional funding. If this is the case, knowing what your business is worth will be necessary to determine how many shares you will give for a certain investment.
  10. Finally, valuing the business will help you to identify whether the business is growing, stagnant or declining in value, and whether to restructure the business.

There are various different approaches to valuing a company – but most include an evaluation of your assets, market and income. To learn more about the process, please contact your local MidWestOne business banker.

About the author

Chad Lindgren is a Business Banker at MidWestOne Bank.

Comments are closed.