Business

Most business owners don’t count on their most valuable assets


Many small company owners don’t know how much their business is worth, a fact that can lead to risky business.

A whopping 98% of the small businesses polled by M&T Bank over the past two years don’t know the value of their companies. This is especially worrisome because for most business owners, their company is their most valuable asset.

“People whose home is their primary asset want to know its value. If you open a brokerage account, you want to know how much it’s worth. You would never give your money to an advisor. Finance told you to trust them, says Travis W. Harms, head of family business advisory services at Mercer Capital, “Just because your business isn’t a liquid asset, no which means it’s not real wealth.”

Here are five points to help entrepreneurs understand the importance of business valuation.

Valuation is crucial to running a business and selling it

Many business owners may be too overwhelmed with day-to-day activities to focus on valuing their company. Others don’t want to spend money or simply don’t realize how important it is to have a third party objectively measure its worth.

However, pricing can be important for many reasons. These include impending sales, stock options issuance, inheritance planning, tax and estate, capital raising, said Robert King, partner in the investment banking group at Crewe, to execute purchase and sale agreements, insurance needs or to obtain business capital. .

For example, let’s say you want to gift company stock to a family member. Understanding the value of the company is important for tax purposes and estate planning. Another reason to appreciate the business is as a checkpoint so partners are all on the same page. Even if there is a sale and purchase agreement, there can be a dispute about how a business is valued for the sake of separation. Having realistic expectations for the business can prevent a protracted and messy battle over a company’s value if it’s time for the owners to part, says Harms.

Knowing the up-to-date value of your business is also important because many owners don’t plan to sell their business until a suitor knocks on the door, says Brett Dearing, partner and planning expert plans to leave asset management firm Cerity Partners said. If you don’t have an existing valuation, you’re at a disadvantage from a negotiating standpoint. You may have too bright a prospect for your business, or, conversely, underestimate its potential.

“A lot of business owners don’t understand the value of their business before they sit down with a buyer,” Diding said.

Certified professionals exist to value your business

One of the best ways to find your business auditor is through one of the three certification bodies.

The Certificate of Business Valuation recognized by the American Institute of Certified Public Accountants is issued to CPAs and qualified valuation professionals who meet the requirements. There is also a business valuation certification from the Association of American Appraisers. And the National Association of Certified Valuations and Analysts offers the Certified Valuation Analyst designation.

Business valuation experts say: While having one of these certifications doesn’t guarantee an appraiser’s quality, it should be your basic starting point based on the level of expertise that the appraisers have. this regulation requires.

Pricing calculation costs will vary

There is no single answer to the question of cost as it depends largely on the size and complexity of the business, the scope of work required, and the purpose and use of the valuation. , Harms said.

With these parameters in mind, an appraisal can cost anywhere from about $5,000 to about $50,000, according to valuation experts. Be sure to be specific with the appraiser about why you’re looking for a valuation so they deliver what you’re asking for.

Mr. King said some of the assumptions made for pricing for estate planning purposes or issuing equity compensation may differ from raising capital or selling a business. “One size doesn’t fit all,” he says.

Business owners should update the value of this property regularly

Depending on what you need to value, it could be something you do every year or every few years.

It can also be done more often when you are trying to grow your business. M&T Bank offers a free digital platform that allows businesses to model how different outcomes will affect their valuation. This is not a recognized valuation, but the service provides a baseline before you take the next step, said Jonathan Kolozsvary, director of new ventures at M&T Bank.

Valuing your business regularly can help you identify weaknesses and improve. “If you go through the valuation process and the value doesn’t turn out the way you wanted, you can improve your valuation based on the identified areas,” said Tami M. Bolder, Director of CBIZ Valuation Group. “It’s also useful for general planning purposes,” she says.



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