23 Nov

USING A BUSINESS VALUATION TO MEASURE PERFORMANCE

  • Posted by Clear Rock
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The SBA estimated that for over 75% of business owners, the company is the largest single asset that they own.  Furthermore, evidence suggests that over 90% of business owners don’t know an accurate value for their business.

Think about that for a moment: in an age where people routinely log in and check the value of their portfolios, of use Quicken or some other tool to keep track of their holdings… the full majority don’t check on their largest asset.


 

ENTER THE BUSINESS VALUATION

Business owners may consider a formal business valuation for a wide variety of reasons, or “triggering events” as we call them.  Common triggers include:

  • Transactional Reasons – considering a purchase or sale
  • Financing – Seeking a bank loan or equity financing
  • Tax – Estate Tax and Gifting
  • Litigation – Divorce, shareholder disputes, and lost profits claims all require a valuation

 

BUSINESS VALUATION AS A VALUE ENHANCEMENT TOOL

A professional business appraisal identifies specific company strengths and weaknesses; addressing financial, operational, and intangible factors that drive and detract from company value along with the relevant impact of each.  It is often a great tool to measure performance of management (whether that is you as the shareholder or professional management) in terms of return on equity.  Understanding value drivers and risk factors provides owners with growth strategies and a blueprint to establish value building initiatives.


 

CONCLUSION

“Quick and dirty” valuation methods, such as industry rules of thumb or standard formulae fall short and do not consider unique factors specific to your company that are integral to the determination of value. The best approach is obtain a professional business valuation. Annual updates can then be obtained for a minimal investment.

Clear Rock is affiliated with Quantive Business Valuations. Our business valuations will quantify the current value of your company, clearly indicate how the value was arrived at, and identify value enhancement opportunities which can be used by shareholders to build company value.

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