Your business’ value – Why know it? When do it?

 By Sudarsan Pattabiraman (M&A Advisor) | 510.944.5616 | sudarsan@upclinch.com

Your business’ value – Why know it? When do it?  

Why do I need a Valuation? 

Business valuations are performed for a variety of reasons, typically centered on financial decisions, legal requirements, or strategic planning. Here’s a breakdown of the primary reasons and types of valuation approaches used:

1. Sale or Acquisition: Valuations are critical when a business is being bought or sold. They help determine a fair price and serve as a basis for negotiations.

2. Mergers and Acquisitions (M&A): For mergers, acquisitions, or joint ventures, a valuation establishes the worth of each party, informing deal structure and equity distribution.

3. Exit or Succession Planning: Valuation assists business owners in understanding the business's worth as they prepare to transfer ownership to family members, employees, or new buyers.

4. Raising Capital: When seeking investment from venture capitalists or banks, businesses often need a formal valuation to demonstrate their current worth and growth potential.

5. Financial Reporting: Certain accounting standards require companies to regularly report asset valuations for financial statements and compliance, especially for publicly traded companies.

6. Taxation Purposes: Valuations are often required for tax purposes, including gift or estate taxes, and to support tax-related transactions like setting up trusts.

7. Litigation and Divorce: Business valuations may be required in cases of shareholder disputes, divorces, or other legal matters to establish fair asset division.

8. Strategic Planning and Benchmarking: Some businesses conduct valuations periodically to assess growth, profitability, and performance against industry benchmarks.

When / How often?

The frequency of business valuations depends on the company’s goals, industry dynamics, and any major changes within or outside the business. Here are some common guidelines:

1. Every 1-2 Years: For growing businesses, frequent valuations help track progress and market shifts.

2. Event-Driven: Conduct valuations during key events, such as ownership changes, capital raising, or major business expansions.

3. Annually for Investor-Dependent Companies: High-growth companies, especially those seeking external investment, benefit from yearly valuations to demonstrate growth.

4. Every 3-5 Years for Stable Businesses: For established firms in steady industries, a valuation every few years is generally enough to monitor long-term performance.

Regular valuations support strategic decisions, improve exit planning, and help capture opportunities.

Where do I start?

Contact Sud / Team Upclinch to initiate the conversation. Our team has a well established network of competent professionals in the business advisory aspect – including Valuation, Transaction Advisory, Financial analysis and Exit planning.