A business valuation helps plan for unforeseen occurrences, sets forth an exit strategy for owners, allows for expansion and presents the opportunity for a merger or acquisition. Business valuations consider assets, income, benefits and overall market.
An unforeseen occurrence can force a business owner to exit the company. Ultimately, if the owner is incapacitated, she is unable to perform the necessary duties. A valuation helps determine the appropriate compensation in the case of a sale or dissolution. Moreover, a potential new owner of a business needs to know the buy-in price, which is derived from the business valuation. Other companies, including competitors, can also determine the appropriate purchase price if a business valuation is available.
Internally, business valuations help keep employees motivated. Some specific examples relate to stock options or compensation packages directly associated with the value of the business. A valuation also strengthens credibility when considering expansion opportunities to present to lenders and even job candidates. Valuations also assist with retirement packages and provide a level of transparency for employees to make retirement decisions. Lastly, business owners can protect their family in the case of a necessary sale or dissolution, as in the event of a divorce or buying out a partner to include a child.