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Determining the value of your business should never be based on speculations or a simple guess. An accurate valuation is a vital part of an ongoing business strategy that you may need for many different circumstances. But what are these circumstances, and why exactly is a business valuation so important? In this post, we have listed 5 reasons why a business may need a valuation.
5. Understand Your Business and the Growth Potential
The first and one of the most important reasons why you need a business valuation is that it helps create a baseline value for your company. This will help you understand where the business is currently in the marketplace, how much progress it has made over the years, and how it competes in the industry. You will also be able to set efficient financial goals, strategies, and marketing objectives based on actionable information.
4. Exit Strategy Planning
If you have decided to sell your business, you will need to start planning your exit strategy in advance. As an important part of the strategy, you will need to identify the value of your business in order to determine whether you should improve its profitability. That’s because the more profitable the business, the higher is the value and, in turn, the selling price.
When applying for a business loan, financial institutions may require a business valuation in order to approve a loan. A valuation will provide the institution with correct market value figures that are necessary to determine whether they will support the loan.
2. Mergers and Acquisitions
When you’re looking to grow your business by merging with another company or buying another business, a valuation will come in handy. A professional business valuation will help you decide whether the asking price is fair. Generally, a merger calls for both parties to get a valuation, whereas an acquisition can require only one party to get it. In any case, it’s never a bad idea to know the actual value of the business.
1. Shareholder and Partnership Disputes
Various circumstances, such as disagreements between owners and merger conflicts, can cause ownership disputes. When owners cannot reach unanimous decisions, this can result in a dispute, which will require a business valuation as part of the settlement process.
Valuation plays an important role in understanding the true value of your business and its position in the market. So when the time comes to sell it or deal with other business matters, you can be well-informed and fully prepared.