Your business exists to create value: when you started a business, it was with the intent of providing something of value to your customers, your employees, and yourself as an owner or partner.
But exactly how much is your small business worth? That’s must-know information, particularly when you’re in the following situations:
Let’s say you have a partner who wants to leave — or who you want to leave. How much should they receive to bow out of the partnership?
All good things come to an end, but what will happen to your business when you're no longer involved. Who will take over? Who could potentially buy it? What would the sale look like? Each of these is tied to the value of your company.
Hoping for a cash infusion? Most business loan applications and grant applications will require you to include the value of your company.
Investors or partners need to know the value of business before they sign on. And if you’re hoping to issue equity to existing or new staff members, you’ll also need to go through the process of valuation (BTW, bringing in a professional advisor to guide you through the valuation process is a good idea).
There are a number of times when taxes will hinge upon the value of your business. Your accountant can fill you in on more details.
Ultimately, when you’re selling, the value of your business is what a buyer and seller agree upon. Still, there are a number of factors that influence the dollar amount. For example, the buyer may be interested in gaining more control over the business or negotiating how long you will stay involved. Goodwill, or intangible factors like brand awareness, can also impact the value of your business, even if not directly quantifiable.
Valuing your business is crucial for a variety of reasons, but the key is regularly tracking and assessing the value, which can help you build a more sustainable business for the future and ensure you stay on the right track to success. This means you need to review profit and loss statements frequently. Identify which line items contribute to an increase in value for your business. Watch for activities that are linked to losses. And when you identify moves that significantly reduce the value of your business, particularly if they cause you to lose customers or valued team members, make note so you can strategize ways to reduce their impact in the future.
Ready to start calculating your business value? Find the calculations to value your business here.
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