For many entrepreneurs, the decision to undergo a professional business valuation comes only when they are preparing to sell their companies. While having an accurate, detailed view of the value of your company is essential when contemplating your exit strategy, there are many other reasons why a valuation makes good sense at other times. When combined with a comprehensive financial and operational assessment, valuations provide business owners with the information they need to facilitate growth.
Savvy business owners have a general sense of the overall profitability of their companies, but few have an in-depth understanding of the performance of key metrics that drive their profits. In an increasingly competitive marketplace, a successful entrepreneur is a well-informed entrepreneur.
Here are a few key reasons why you want to delve into the financial health and operational foundation of your company, even when you are not preparing to sell.
Transparency
Knowing your bottom line is a terrific start to understanding the health of your company. But it’s only a part of the picture. Reviewing your assets, liabilities, cash flow, and operational infrastructure will provide more meaningful insights into strengths, weaknesses, and risks that impact your company’s growth.
When you take a holistic view of your company’s performance, you are able to strengthen all functions of your business, including strategic planning, forecasting, purchasing, real estate, workforce management, product and service offerings, inventory management, business development, and pricing.
The first step to improving your company’s foundation is to adopt a policy of full visibility and transparency. There is no benefit to putting your head in the sand and ignoring data that can highlight improvement opportunities.
Increasing Your Value
Just because you are not currently selling your business, a detailed analysis and valuation is still a worthwhile endeavor, as it will play a key role in enhancing the worth of your company. You will be able to identify and resolve gaps that can negatively impact your company’s asking price for when you do want to sell.
For example, an assessment of your business may uncover weaknesses in your accounting system and operating processes. By understanding what needs to be improved, you can correct deficiencies, which will ultimately lead to a higher valuation in the future when you are ready to sell.
Also, breaking down the numbers may uncover significant risk factors. While your overall revenue performance may be strong, a closer look may show that a substantial portion of your sales volume is derived from a handful of main customers. A loss of one or two of these customers could potentially be devastating to your company’s financial health and existence. Recognizing this will help you adjust your marketing practices to reduce your risk.
An assessment will also provide a view of your company as compared to competitors in your market. This will provide the information you need to lower your costs, adjust your pricing, realign your workforce, and modify your products and services.
Additionally, understanding your company’s true worth will also help with tax planning, contribute to determining the proper amount of insurance coverage you need, and ensure that your company has the most appropriate debt structure.
Next Steps
When preparing for a business valuation, it’s important to work with a firm that has a proven track record helping companies like yours. At Peek Advisory Group, our experts specialize in maximizing cash flow, managing rapid growth, and increasing the value of women-led businesses.
Analyzing your company’s financial health and operational strength is important to do at all stages of your company’s growth. It will give you the opportunity to make adjustments before you are bogged down with risk, inefficiencies, and waste. As author Harvey Mackay said, “Dig your well before you’re thirsty.” When it comes to valuing your business, this makes a lot of sense. Don’t wait until you’re about to sell your company to perform an assessment when it may be too late to change course.
We offer three variations of business valuation depending on your goals. You can also get insights into the key areas noted above by taking this free assessment to get insights in the your business health. In five minutes or less, you can answer 15 questions and receive a 10+ page report on the areas in which your business excels and where it could use some work. Go here to start the quiz!