Why should you know the value of your business

Why should you know the value of your business

Why should you know the value you of your business | Aspect Accounting

Why should you know the value of your business if you are not thinking about selling? Let’s take a quick multiple choice test, answer each of the following yes or no:

  1. Do you think you may want to retire some time in the foreseeable future?
  2. Do you know who the buyer of the business may be or whether a buyer may exist?
  3. What will happen if you are unable to run the business for any reason (sickness, accident etc)
  4. Do you have a plan for the succession (someone to take over or buy your business)?
  5. Do you have adequate business insurance to protect this asset?

If you answered yes to any of the above, you should know the value of your business and here’s why.

  1. Insurance Cover

An up to date business valuation is vital to adequately insure your business. In the unfortunate event of sickness, accident or death of a key person or owner, a pay-out will be made to your family and/or co-owners. Your valuation will determine the level of cover and the approximate  pay-out. It is important to remember that a business valuation must be conducted regularly as market conditions, competition and financial performance can fluctuate.

Unforeseen circumstances such as natural disasters, theft, fraud and other business risks are also important to insure against. This is difficult without a business valuation. An experienced and qualified insurance broker will be able to assist in ensuring that you have the correct cover, and insurance policies that are suitable if an event occurs.

  1. Planning to Grow

If you are planning to grow your business in the new financial year, your business value is an excellent benchmark. A business valuation is great for comparing annual growth and value of the equity in your business from year to year.

During the valuation process, you can also identify room for improvement in your business such as strategies to improve cash flow and how to improve systems/procedures. By working on these areas of the business, it can become more attractive to a prospective buyer and help to increase its value.

Have you seen our “New End of Financial Year goals” blog? We’ve got a few tips on identifying your business weakness’.

  1. Investment Opportunities

Similar to establishing a benchmark for future growth and KPI’s, a current business valuation will help to provide an up to date report for existing and potential investors. When opportunities in relation to ownership, investment decisions or strategic partnerships arise, decisions need to be made quickly – being organised is a must, and having  information relating to the valuation and performance on hand is important!

  1. Retirement

We’re guessing you answered yes to retiring one day. Want to know how much you’ll have to retire with after selling your business? An up to date business valuation is important for you to understand how much you will generate from the sale of your business. Is it enough to retire comfortably? Do you have a plan on how to fund your retirement not only from the proceeds of the sale of your business but from other investments made prior to retirement.

For more advice on why you should always know the value of your business, how to plan for business succession and planning for your retirement please contact our office.

If you’d like to book a consult for a business review, please call our West Perth office on 9227 9400