How Often Should You Have Your Business Valued?
You’ve had your business valued. You know exactly what your company is worth. How often do those numbers change, though? How will you know when to value your business again to ensure that you consistently have a grip on what your company’s current worth is and when that might change?
When to Value Your Business: Begin By Understanding the Purpose of Valuation
Why even have your company valued in the first place? There are many reasons a good valuation matters. Your peace of mind is just one of them. If you ever want to sell your company, you’ll need to be able to demonstrate how your valuation has changed over time. Similarly, if you’re looking for investors or additional capital, a valuation is a must.
The answer here really depends on the reason behind the valuation itself, and it changes based on that reason. If, for example, you just want to know what your company is worth, you’ll likely want to start with a base valuation from a professional analyst, then do a basic calculation on your own once each year.
If, however, you have business needs that demand a valuation, you’ll need professional help, and the resulting report is typically only good for a year from the initial date of valuation. The reason behind this is a fairly simple one. Valuations make some assumptions based on the available facts at the time. Those assumptions and facts, though, can change. World events – like a pandemic – can change the value of your business. Economic trends – like the resulting recession – can shift the value of your company too. So can industry competition or management changes. When considering when to value your business, an annual revaluation isn’t a bad idea. Many experts believe that there are some factors that may even demand an evaluation on more than a yearly basis.
- How soon are you leaving? If it’s within five years, many believe a check-up every six months is a must. That will help prove that you’re continually increasing value so that you know the best possible time to exit.
- If you’re in an unstable industry, you may want to have your company valued regularly, too. Industries like healthcare and technology regularly see large value swings, so having a company examined routinely is an absolute must.
- Small customer numbers or an industry that is fairly concentrated in terms of geographic market may want to have more frequent valuations as well. Large swings in value come with problems like those, so regular check-ins are a good way to determine the financial health of the company.
As you work to determine when to value your business, and the right number for your company, don’t forget, too, to think about how often you can afford to have a valuation performed. If you’re not producing a regular cash flow for yourself, there’s probably no need to have that valuation given the cost. If, though, you get significant cash flow, having it valued regularly is a good idea. You can afford it, and it’s a good way to better manage what’s changing. Just set aside a percentage of your earnings to do so on a regular basis.
Contact us today if you are looking for a partner who has experience working with business owners through these processes.