3 MIN READTop 5 Reasons why Business Valuation is Important

business valuation

What is valuation?

Valuation refers to the process of determining the present value of a company or an asset. It can be done using a number of techniques.

Moreover, there are a few factors that come to play when analysts want to place value on a company. Normally they will look at the management of the business, the prospective future earnings, the market value of the company’s assets, and others.

Why Business Valuation

Undoubtedly, business valuation is important for business owners for a few number of reasons apart from knowing your company’s worth:

1. Buying a business

business valuation

Firstly, it’s normal that sellers and buyers to negotiate, discuss and have diverse opinions on the worth of a business – the real business is what the buyers are willing to pay.

Without a doubt, a good business valuation will look at market conditions, potential income, and other similar factors to ensure that the investment you are making is worth the money.

2. Selling a business

Secondly, When you want to sell your business or company to a third party, you need to be certain that you get what it is worth. That’s where business valuation comes in.

Therefore, the asking price should be attractive to prospective purchasers, but you should not leave money on the table.

Importantly, you should never estimate the value of your business nor pluck numbers from thin air. Hence, be sure to hire professionals to valuate your business for you.

3. Strategic planning

business valuation

Indeed, the true value of assets may not be shown with a depreciation schedule, and if there has been no adjustment of the balance sheet for various possible changes, it may be risky.

On the other hand, some business owners made mistakes by hastily purchase new assets without planning or valuating their businesses.

Therefore, having a current valuation of the business will provide you clear information that will help you make better business decisions.


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4. Selling shares in a business

For business owners, proper business valuation enables you to know the worth of your shares and be ready when you want to sell them.

On a side note, companies sell shares in their business to raise money. They then use that money for various initiatives.

Therefore, you ought to ensure no money is left on the table and that you get good value from your share.

5. Exit strategy plan

Finally, in instances where there is a plan to sell a business, it is wise to come up with a base value for the company and then come up with a strategy to enhance the company’s profitability so as to increase its value as an exit strategy.

On that account, it is advisable for you to have an exit strategy early enough before the exit.

Hence, a valuation with annual updates will keep the business ready for the unexpected. Apart from that, it will also ensure that you have correct information on the company fair market value and prevent capital loss.


Valuate your business by PROFESSIONALS!

Head on to Irhamy International Valuers and valuate more than just businesses; valuate your properties – commercial, industrial, plants, machinery & equipment and intangibles!

If you have any other questions regarding property or you are keen on purchasing a property, drop us your contacts below and we’ll be in touch!

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