Top 5 Reasons you need a Business Value Calculation
Contributed by Idea Collective Member:
In the past few years:
Remodeling Company A had $1.6 million in revenue and sold for $1.3 million. Remodeling Company B had $1.9 million in revenue and sold for just $520 thousand.
How can that be? Company B had more revenue but sold for much less than Company A.
Do you know your company's value?
And don’t guess. Don’t estimate it based on the revenue. That’s just one piece of the puzzle.
If you’re stumped, now is a good time to get a business value calculation. As tax season is over, our paperwork is organized. We have our numbers. It’s time to act.
First, it’s important to note that a “business value calculation” is not an appraisal but a calculation based on your provided data. Business value calculations are an efficient and cost-effective approach to determining your business’s fair market value.
Bottom line? You should get one done. Here are five reasons why you should.
1. For Business Insurance
Of course, you have business insurance. But do you have enough? Would your insurance cover the loss if the worst happened and you lost your business assets?
You’ve worked too hard for that to happen. Getting a business calculation helps you determine the coverages you need. If your business is worth $3 million, you want to make sure your insurance covers at least $3 million.
Another thing to think about is the possibility of legal action. If you get sued, what are you going to lose? What are your business assets so you know what to insure for? A business value calculation helps you find that number.
2. You're planning to sell someday
If someone offered you a check today, would you take it? How would you know if you were being offered a fair deal?
This could be the most important reason to know your business’ value. You might depend on your business’ sales to fund your retirement or future business ventures. Knowing your business’ value gives you peace of mind because you’ll better understand what’s coming. You’ll know where you can price your business and what you’ll get out of it.
We tend to know the value of our homes, but we don’ tknow the value of our businesses. This is because the information about our home is usually given to us. We have to put in some effort to get the value of our business.
But its just as crucial to know that value of your business. If the sale is funding your retirement, shouldn’t you know its value? That’s better than just guessing and hoping.
3. You need a loan
Maybe you’re at a point in your business where you need new equipment. Would the bank give you a loan to pay for it? What collateral do you have to buy it? If the bank is only going to finance 70%, can you leverage the value of your business?
Getting a business value calculation helps you get a “Yes!” to those questions. One reason to get a business value calculation is to show the bank what your business is worth. It provides an outside perspective that banks need to make loan decisions. And you’re in a stronger position because you know what your business is worth.
4. You want to grow your business
Naturally, you want your business to grow. But if you don’t have a real growth plan, you’ll have a hard time doing it. How will you even know when you’ve met your goals?
Knowing your business’ value is the starting point for creating a sensible growth plan. By knowing where you are now, you can better figure out how to get to the next step.
5. Knowledge is power!
How do you know if you are winning or if you may have already won? How do you known how your business stacks up compared to your competition? Using the numbers is a great first step to figuring that out.
There are many more benefits to getting a business value calculation. The bottom line is:
Knowledge is power! Knowing the bottom line helps you leverage your position in every area of your business. When you are ready to learn more, contact me. Let’s get that calculation done and set you on the right path for a successful 2023 and beyond.
Vision Forward Business Solutions
Using decades of communication, accountability, and leadership skills, Brad will develop a plan allowing you more time with your family, develop the next leaders, and create value for your business.