Many small business owners never expect to retire simply because they never make an effort to understand the actual value of their business. The importance of this information becomes even more apparent when you realize that nearly 70% of business owners have the majority of their wealth invested in their business assets. This means businesses will serve as retirement savings tools, yet most small business owners don’t know what that means for them in financial terms.
One benefit of a business valuation report is that it will tell you how much you have invested in your business, which will give you a better idea of when you’ll be able to retire. Here are a few more ways a valuation report will help you improve your ability to operate your business.
1. Increase Business Value
You can use the valuation report to see that the business is headed in the right direction. It will give you firm data that either backs up or corrects the assumptions you have about your business. As a result, you’ll be able to develop effective actions to improve your business’ growth.
2. Gain New Capital
A lender or investor is unlikely to give you capital based solely on blind faith. A valuation report will be helpful by showing potential investors or lending institutions that your business has the value to support their trust in its continued growth.
3. Mergers and Acquisitions
Your business valuation report will provide the data necessary to pursue any merger or acquisition. Owners of other businesses will need this data to determine the benefits of a possible deal between your two organizations.
4. Dissolving a Partnership or Marriage
The data contained in a valuation report will give you the information you need to buy out a partner. If you’re ending a partnership, your partner will expect to be compensated, and a valuation will give the information you need to make a fair offer. Similarly, you will need to know the worth of your business in pursuing a divorce settlement.
5. Pay Accurate Taxes
Many types of taxes will be determined based on the worth of your business. You may need a valuation report to ensure you’re accurately paying estate, income, property, and capital gains taxes.
6. Employee Incentives
You will need to know the worth of your business to disclose the necessary information to employees who are participating in a stock options program.
7. Insurance Coverage
You’ll want to ensure your business is properly protected by insurance. More than 70% of small business owners are insufficiently covered because they don’t know the true value of their businesses. Even though a valuation will improve your ability to manage your business and serve customers, most business owners put them off. They assume this process will involve an invasive and disruptive examination of their business records. On the contrary, advancements in technology have simplified this process. It can now be done in a single afternoon. These advances in technology eliminate any reasons to procrastinate in getting a valuation report for your business.