Why is business valuation important to a small business owner?

By Gary Wilkinson

As a small business owner, your goal is to raise the value of your business. Whether you want to continue running your business or if you want to create an exit plan, high business value is the key to success. Continue reading this article to find out what a business valuation is and why it is important.

A business valuation can be done through small business valuation methods like Valuator. There are various ways to get the value of a business, but you need to make sure you use the right valuation method or you won’t get the result you want.

If your business is going into liquidation, you’ll get a very different value than you will if your business is stable or in a growth period. Know where your business is going before you work on getting a valuation for the best results.

Business valuation is a necessity

If you wonder if the business valuation is important, the answer is a resounding yes. A business valuation is essential if you plan to sell or if you simply want to determine your company’s financial standing.

Determines business management

When you understand your business and its inner workings, you will likely make decisions differently than you would otherwise. Think about your business as an airliner and a business valuation as your instrument panel. If you don’t have a business valuation, you will be flying blind, but with a business valuation, you are able to properly gauge your business’ health, and better navigate to your ultimate destination.

You will be able to track how effective your business strategies are, and when you need to make changes to make your business more valuable. Whether you need to get more aggressive with your strategies or if you need to pull back in areas where you are spending that aren’t effective, you’ll be able to see it after a business valuation.

The way you manage your business is very important. If a company doesn’t have a clear plan for growth and depends on a creative and in-the-mix management style, it may not be as attractive to potential buyers. Unless a buyer wants to get into the inner workings of the company, they may pass on your company and go for a business they can purchase and own passively.

Know your goals when you get your business valuation, and you’ll be able to start working toward a solution. If you want to get a buyer for your business, make sure the report is written favorably and simply so the potential buyer can understand.

Helps you set a price if you’re selling

If you decide you want to sell your business, a business valuation will help you set a price. Make sure you’re using a business valuation method for a company that will continue doing business. If you value your business through the wrong type of valuation, you may undervalue your business.

If you set a price based only on the assets your business has, you are going to undervalue a profitable and growing business. Look at methods that will help you understand how much your business should be sold for by taking future profits into account.

One of the valuations you may want to use when you are setting the price for your business is the market average. You shouldn’t set your price at precisely the market average, but you should use this figure to get an understanding of what businesses like yours are going for in the current market.

You should know that your business may not be an average business. Average means some businesses are selling for more and less than the average price. You need to figure out whether your business should be sold on the higher or lower end of things.

Reveals potential weakness and areas of growth

Getting a proper business valuation will reveal any weaknesses and areas of growth in your business. If your business is experiencing challenges, this is a perfect time to deep dive into your financials and business processes. Being able to see your business holistically means you can make wiser decisions.

If you are planning an exit in your business, a valuation will help you figure out what you need to fix before people are interested in purchasing your business. You want to increase the ease of use for the new potential owner. Most people aren’t great at growing businesses and putting processes into place, so you need to make it easy for them.

Necessary to get more funding

When you want to get more funding from either banks or investors, you need to have a proper business valuation. Your potential investors want to make sure they are going to get their money back, and banks need to see certain criteria as well.

The more favorable information you have on your business, the easier it will be to get the funding you need for your venture. If you work with a reputable valuation specialist, they can help you figure out exactly what the best valuation method is for you and how to go about getting proof that your business is valuable.

Continue to grow your business

Having your business valuation means you’re taking control of your business’ future. Make sure you use the valuation method that is right for your business. Whether you are selling or not, business valuation should be on your things to do list.


Gary Wilkinson is an internet marketer from England. He is the CEO of Link Kings Agency.

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