by Jeff Semple,FocusCFO | Accounting

You know your business inside out. It’s your passion, the fruit of years of labor. To you, it’s priceless. But what is your business really worth?

You may not think knowing that is important right now as you focus on running and growing your business. At some point in the future, you will want to exit from the business one way or another, and you will need to know the value, but what about now? Is it important that you do the things that will maximize the value?

First of all, you probably have an idea of what your business is worth, or at least what you think it is worth. However, if you are like most business owners, your idea of what the business is worth is based on emotion, not on reality and facts. The value of your business is what someone else is willing to pay for it, not what it’s worth to you.

Second, knowing the real value now allows you to develop a proactive plan to grow the value of the business by working with your management team and outside advisers to develop and execute a plan to reach the optimal value when it’s time to transition out of your business.

So how do you determine the value today? Business valuation is not an exact science and is ultimately is based on what someone is willing to pay for the business. There are a multitude of methods to value a business, and the method used depends on factors including the current economy, your industry and who is doing the valuation.

Financial investors will be interested in how much the business can grow after they take it over so they can determine what their return on investment will be at exit.
Lenders need a tangible current value that tells them what they could recover now if you default on your loan and they have to sell your business or its assets.
A buyer wants to pay a fair market value based on factors including the future cash flow of the business, comparable sales of similar businesses as well as the processes and systems in place that assure continued success.

The best way to really understand the true value of your business today is to get a formal valuation from a valuation expert. It is not expensive, and it is well worth the cost to have a realistic idea of what you have now so you can create a strategy to grow your business to the value that you want to achieve.

For more information on understanding business valuation or with help finding a qualified valuation expert, call us at 330-412-5872.