Is Your Business Really Worth What you Think?

Updated: February 11, 2011

Most small business owners have only a vague idea of what their businesses is really worth. And most of the ones who think they know are probably wrong. Professional appraisers who regularly conduct business valuations say that owners err on both sides. Some fail to include intangible assets in their estimate and undervalue what they've built. Others think their businesses are worth much more than reality would dictate. Even if your company isn't required to have a valuation, it is still important to the future of the business to know what it's worth.

Business owners often bring in an appraiser to prepare for a purchase, a merger or an employee stock ownership plan. Or a valuation might be needed for estate and gift tax returns, buy-sell agreements, litigation, tax challenges, divorce or many other purposes. Here are four more reasons to perform a business valuation:

  1. To understand where your business fits in the industry landscape. A business valuation will describe precisely where you fit in your industry or specialized market.
  2. To gain more insight into your "real world" financial condition. As a business owner, you probably have financial reports to indicate your financial health. But a valuation that includes intangible assets can expand on, confirm or deny existing beliefs.
  3. Make fast decisions on expansion, financing, sale or merger opportunities. When opportunities knock, a current valuation will let you pursue opportunities quickly.
  4. Make smart choices to enhance the value of your business. A valuation will highlight the things that make a business valuable, and show you ways that you can increase what your business is worth.

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