3 Reasons for a Business Calculation of Value

Digital marketing. Business strategy. Businessman using tablet analyzing sales data and economic growth graph chart on hologram screen. Business strategy and digital data.Knowing the value of a business is important at many different stages, not just during merger or acquisition activity. Full business valuations may be appropriate when a business partner wants to be bought out or for an equitable division of assets during an owner’s divorce or estate settlement. 

However, there are times when it is appropriate for a business to save time and money by performing a simpler calculation of value. A calculation of value takes a higher level approach than a full business valuation. Below are three reasons when a simpler calculation may be enough.     

Succession Planning 

In the early stages of succession planning, it can be helpful to get a calculation of value to know what your business is worth. Even if you do not plan to sell your organization for many years, a calculation can assist in planning what steps you can take to optimize the value for when that time comes. Even if you are transferring the business to a family member, you will still need to know the value of the business as you begin planning that transition and the terms to go along with it.  

 Financing Requirements 

If you are obtaining financing for a capital purchase or any portion of your business, a calculation of value could help your lender in determining how much they can realistically loan you. Every lender has different requirements, so it’s important to find out up front what your lender needs before you obtain a calculation of value. In some cases, they may require a full business valuation, especially if you are financing a significant amount or it is a new lending relationship. 

Communicate Shareholder Value 

Often a simpler calculation can be used to communicate shareholder value or to receive approval from your board to pursue new opportunities that lead to profitability and growth. Sharing the value of your business through a calculation can also allow your shareholders to be more informed about their investment into the business as they conduct their own tax planning and retirement preparation. If the company is showing a growth trend, they may choose to hold their shares for a bit longer to optimize their investment return.  

If you are unsure about the value of your business, a simpler calculation of value can provide the information you need to develop strategies for growth. It’s a planning tool that can provide a road map to enhance the business’ worth and peace of mind for your future.  

Our Business Valuations team provides full business valuations or can recommend a simpler calculation of value, depending on the needs of your business. We can help you understand what your valuation means and any issues that could improve or impact that value. Contact Ryan Campbell or Andrew Labosier at 256-533-1040 to schedule a time to discuss your company valuation needs.  

You may also be interested in Business Valuation for M&A – How to Improve Your EBITDA