How much is your small business worth?
Knowing can help you plan your business and personal future.
As a small business owner, it’s easy to fall into the trap of thinking that a business valuation simply isn’t necessary, at least not yet. After all, you’re busy trying to grow your business. You can worry about what your business is worth down the road, when it’s time to sell or think about retirement, right?
- Planning for the future: A business valuation provides a current market value that you can use to assess the strength of your business and determine where improvement is needed—before you retire, sell or pass the reins to another family member. Once you know how much the business is worth, you’ll be able to plan for these events with confidence.
- Purchasing adequate insurance coverage: Small businesses often use a life insurance policy to protect against the death of a key employee. In this case, a business valuation can help determine how much insurance coverage is necessary.
- Expanding the business: When it’s time to grow your business, an accurate and up-to-date business valuation makes it easier to approach lenders and raise capital. It provides potential lenders with a snapshot of the health of your business, which in turn facilitates the decision-making process.
- Establishing a buy-sell agreement: This agreement typically outlines what happens to a business in the event of death, disability, divorce or retirement. If one of these events triggers a sale, you’ll need to know the value of an owner’s or partner’s share of the business.
- Helping with tax and estate planning: If a business owner passes away, the family or estate may be required to pay taxes based on the value of the business. Without a certified business valuation, determining how much your business is worth will probably fall into the hands of the IRS.