Behind all business endeavors is a drive for success. Business owners experience this push first as they are the ones faced with the task of translating their ideas into a tangible company. As the business grows, it will absorb additional team members who have interest in working with the company. If this growth is sustainable, it will also eventually accumulate prospects interested in acquiring the company.
In 2015, an estimated 64 percent of business owners were preparing to transfer ownership of their company within the next ten years. In a competitive and wavering market, will these business owners be satisfied with the money they acquire from the sale?
The years of hard work and sacrifice that go into building a profitable company often cloud an owner’s judgment of their company’s worth. They are prone to measure reward against the amount of time they have personally invested in the company – years of challenging work and constant risk-taking would have to pay off substantially in the end, right? This bias corresponds with ego; because someone has invested so much of themselves into a company, their profit should reflect that. On the other hand, however, there are some business owners who are completely blind to their company’s worth.
These different approaches to management may seem extreme, but they are more common than one might think – and they are exactly the type of business owner you don’t want to be. Every business owner should know what their company is worth well in advance of when they are planning to sell. Valuations have become a critical facet of business strategy because they take a company’s cash flow and all of its other nuances into consideration when assigning a number to your business.
Knowing this monetary amount not only equips business owners with knowledge of their company’s past and shows them where they stand in the market today, but a valuation can also help you plan for the future success of your business. Seeking valuations only when they are necessary is a rather short-sighted approach. Instead, consistent valuations can be used as a tool to track performance not just in terms of estimated revenue, but in overall value as well.
Tracking the trajectory of a business using valuations can highlight unforeseen patterns that could be hindering your company’s growth – or any healthy patterns that could continue to grow the company into something even more substantial. You should consult these business valuations as a resource to assist you in the decision making process. Even seemingly beneficial decisions could have weighty ramifications on the positive growth of your company. A valuation can help you analyze how a strategic business decision would affect your company’s bottom line before you implement it.
Using valuations as a compliment to your business strategy will give you an edge over your competition. The more intuitive you can be, the better off your company will be. Business valuations do not have to be contingent upon monumental situations, although they are necessary in those moments. Creative owners can use them as a guide to formulate a business strategy that will lend itself to continued growth year after year. When it comes time to sell, you will know what you are worth.