If you were approached by someone interested in buying your business, would you consider it? Would you know what would be a fair or reasonable price? Few business owners know the true value of their own companies. Daily operations keep them focused on revenue growth, payroll, personnel issues, administrative processes, inventory reports, etc.
Whether or not you have any immediate plans to sell your business, it is important to know its true worth. That knowledge is imperative for key management decisions like borrowing capacity, succession planning, retirement planning, and a host of other issues. Performing a “mock due diligence” exercise could prove to be very helpful towards determining a reasonable estimate of your company’s value.
The process begins with an evaluation. Securing an independent, objective analysis will provide a foundation on which you can have confidence. Though reviewing current and multi-year financials is very important, there is much more to understanding the value of your company. Valuation considers the operation of your business concerning staff, culture, product or service, capital requirements, existing contracts, and competition, among other things.
As one would imagine, reviewing financial, legal, and administrative documents is a key part of the process. Organizing, reviewing and fully understanding those documents and their extended impact is critical. If you are considering selling your business, being unpleasantly surprised by something in one or more of these documents could be very unfortunate.
It is likely that your senior management team, attorney, accountant, and others would all be involved in the valuation process. It would also be valuable for them to know the results. That information will be useful for strategic and financial planning for the future – even if you do not intend to sell your business. It can provide valuable insight for planning how you want to improve and grow the business under current ownership.
There are other times when business valuations are needed. Inheritance of a business, divorce situations, management buyouts, financial restructuring, and recapitalization can all generate the need for reliable valuation data. Being prepared in advance, or taking time to do a thorough evaluation when an unanticipated opportunity occurs, can make a major difference in the outcome.
Price CPAs is experienced in buy-sell transactions and valuations of businesses. If you would like help in preparing for a sale transaction or understanding the value of your business, call us to learn more about how we can be of service. You can reach us through our website (http://www.pricecpas.com) or call Alan Webb or Tom Price at 615-385-0686.
Alan Webb, CPA, Partner
Price CPAs, PLLC