An article at Forbes.com answers the most frequent question valuation analysts get from small-business owners: “Why should I bother valuing my business?” Of course, business valuation pros know the answer to this, but the article gives a good rundown of the reasons, which can give you some ammunition for marketing material to promote your practice and convince small business owners that they need a valuation.
- Someone else will value the business anyway. For bank loans, the bank will value the business, so the owner will want to demonstrate a higher valuation. Also, the IRS may value it upon a sale or estate transfer.
- A potential buyer shows up. The business owner needs a firm grip on value in case a potential buyer makes a lowball offer.
- Retirement needs. For many small business owners, their business is the main asset in their retirement plan. You can’t plan retirement income without knowing the value of the plan’s main asset.
- Estate planning. Business owners who have various assets and want to leave equal amounts to heirs need to monitor the value of the family business to make sure none of the heirs get shortchanged.
- Key person planning. A business valuation can serve as a baseline value when designing growth incentives to reward key persons in the business.
- Court challenges. Business valuation issues do end up in court, so a business owner needs all information available to fend off legal challenges.
BVWire adds that once you’ve successfully answered the question of why a valuation is needed, you can take it to the next level—convincing the owner to have the business valued every year. For one thing, this allows owners and shareholders to see if the management is increasing value each year. True, this will cost more (although an annual update can be charged at a lower rate), but the benefits will act as an offset.
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