A business valuation is typically needed in the following scenarios:
- You are thinking of buying a business or ownership interest.
- You decide to sell your business or transition ownership.
- You are planning for retirement.
- You are hoping to buy out a partner or shareholder.
- You have a Buy-Sell Agreement that requires a valuation.
- You want to know how much life insurance you need.
- You might become involved in a lawsuit or divorce.
- You would like to gift ownership interests in your business to children or relatives.
- You need an appraisal for an estate tax return.
If you are a business owner, at least one of these scenarios likely happen eventually. In some of the scenarios a business valuation might not be required until an event has happened. However, a business valuation will provide more value to a business owner the sooner and more regularly it is performed.
In the article “If You Value Your Business, You Should Value Your Business” (Forbes, 2012), Warren Buffet indicated that business valuation is more important than stock trading, efficient market hypothesis or modern portfolio theory. He also advised that it is “critically important” to understand business valuation. The article summarized it this way:
“Business Valuation is a process done by professionals, but it’s a product the business owner needs to understand.”
Your business might be your most valuable asset. It would be wise to invest in a professional, independent valuation to understand what your business is worth now so you can have more control over the future.
To better understand the value of a professional business valuation, see our blog post titled “Benefits of a Business Valuation.”
For tips on how to select a business valuation professional, please see our blog post titled “How to Select a Business Valuation Professional.”