As a business owner who handles many aspects of your company's finances on a regular basis, you already have a reasonable idea as to just how much your business is worth. However, there may be times when you will need to know the worth of your business down to the last penny. When you do, this means you will need what is known as a business valuation. Though there is no one standard formula used for doing business valuations, your CPA will know of numerous measures used to give you an accurate assessment of your company's worth. Should you need to get an accurate business valuation, here is how you and your CPA can work together to make it happen.
When Would You Need a Formal Business Valuation?
As you meet with your CPA, you will learn there are certain situations that will require you to have a formal business valuation for your company. For example, if you are selling your business, seeking financing, or planning an IPO, an accurate business valuation will be necessary. Should you have legal matters in which you are involved, such as a divorce, bankruptcy, or damage determinations regarding a case where you and your business may have been sued, a business valuation will be crucial. Finally, a business valuation is crucial for tax purposes, especially if you are currently in the midst of estate planning, a stock option distribution, or an S Corporation conversion.
Closely Examine How Your Business Operates
Though you have a good idea as to how your business operates, there may be things you have overlooked that could provide you with a much more accurate business valuation. To begin with, work with your CPA to determine if your business uses a tax structure that is the most efficient to meet your company's needs. Also, examine company sales. Are you expanding your customers, or instead only making most of your sales to a handful of reliable customers? In many cases, hiring a consultant to help with lagging sales can jump-start your business.
You may also consider removing products from your inventory that are failing to sell well, redesigning your sales catalog, and making your current customers aware of exciting new products you have available. Finally, think about making improvements to your business location. Whether it's a new paint job or other improvements, these will add value to your business.
Think About Your Company's Tangible and Intangible Assets
Now that you have consulted with your CPA to examine how your business operates, it is time to also give serious thought to your company's tangible and intangible assets. In fact, when doing a business valuation, it is vital that you remember it is also based on the value of your intangible assets, which may make a tremendous difference in your company's overall value.
While you and your CPA will spend plenty of time crunching the numbers to subtract your liabilities from your assets, it may be the intangible assets that really make the difference in the end concerning your business valuation. As an example, think about the following. It will be easy for your CPA to figure out the value of your company's real estate and various fixtures, but how much is your intellectual property worth? When you discuss this with your CPA, patents and trademarks you hold will come into play, so keep these in mind.
When looking over tangible and intangible assets, also include your company's reputation with both your customers and the community where you are located. To the surprise of many business owners, these business relationships can greatly impact business valuation.
If you have long-time employees at your company, their experience and in-depth knowledge about products and your customer base also add value to the net worth of your business, so don't forget this when seeking an accurate business valuation.
Carefully Choose Your Business Valuation Appraisal Team
For many business owners, especially ones who have just started being their own boss, arriving at an accurate business valuation initially seems very easy to do. However, inexperienced business owners tend to forget to include intangible assets, consider their company's tax structure, and other key components that come together to comprise an accurate business valuation.
Rather than make this mistake, you should always choose your business valuation appraisal team very carefully from the beginning. If you don't, mistakes will be made, and your business will be valued far below its actual net worth. Should you think you can simply find the information you need online or from a few books you find at the library, you are setting yourself up to fail at putting an accurate value on your business.
While your CPA will be the most important professional you work with when determining how much your business is worth, other members of the appraisal team will also give you important information. For example, an attorney who specializes in business law can be useful if you have questions about how a recent bankruptcy filing or divorce could impact your company's worth.
A business broker can also be very important during the valuation process. Since these brokers have years of experience buying and selling various types of businesses, they should have a solid idea as to how much value your fixtures, property, and inventory bring to your business.
Along with these professionals, your CPA will be able to give you a solid overview of how your tax structure and other related financial matters will increase or decrease the value of your business. By simply learning of a new tax structure that could benefit your business, you may be able to see its value increase more than you expected.
Should you be planning to sell your business, find yourself involved in various types of litigation, or perhaps have questions about estate planning in terms of how it will impact your business, consult with a CPA you know and trust. In doing so, you can gain peace of mind about the financial future of your business.