The Importance of A Valuation In A Crisis
Updated: Nov 20, 2020
The valuing of your business is critical, particularly during a crisis. It helps in understanding your business's past performance and determine where you are today, and how do you get to where you want tomorrow? 98% of small business owners don’t know the worth of their business, which makes important business decisions much more difficult than they should be. A few questions a business valuation can answer include:
“When should I sell and what is the best price?”
“How should shares be dispersed with a new partner coming in or an existing partner leaving?”
“How much insurance should my business carry?”
Let's talk in detail about business valuations and their significance!
What is a business valuation and why is it important?
A business valuation is a general process of determining the economic value of a whole business or company unit. Business valuation can be used to determine the fair value of a business for a variety of reasons, including sale value, establishing partner ownership, taxation, and even divorce proceedings. Owners will often turn to professional business evaluators for an objective estimate of the value of the business.
Knowing the value of your company is of high significance in the business world as it provides limitless insight. The business owner can use it as a tool to negotiate or re-negotiate future business deals. When it comes to fundraising, expansion, or team expansion, a business valuation can prove to be highly beneficial.
Why is the Valuation of any Business Important During a Crisis?
Knowing the value of your business gives you direction and leverage to plan any future moves.
During times of crisis, business owners need a proper plan in place to preserve capital, protect against suits and promote growth, in order to survive and furthermore, to thrive.
Over 170,000 small businesses were permanently closed during the Great Recession. An estimated 163,735 businesses have closed in the U.S. since March 1, and the numbers are rising. In Canada, that number is over 158,000.
Every crisis in history has witnessed unprecedented levels of economic activity, both downside and upside. It may be a crisis for some businesses, but an opportunity for others. A business valuation helps you navigate the rough waters. Being aware of the value of your business provides your company with options. In the case that your business is struggling during a crisis, a valuation will position your company for a sale, to raise funds, to merge with another company or to be acquired by another company. If your business is doing well during a crisis, a valuation will position your company to acquire other businesses at a discount or to expand in numerous ways. Valuing a company is extremely important as it allows you to identify its assets, liabilities, and potential for growth easily. After all, it is the result of your hard work. Business owners and entrepreneurs invest many years of their life, efforts, money, and hard work to build a company from scratch.
A valuation of your company can prove to be your principal tool. It would offer you control over uncertainty. Although there are various methods to evaluate your business, you should seek assistance from a business valuation firm to find out the real certified value of your business.
Cerberus Consulting is a highly recognized business valuation firm in the region. If you are looking for a business valuation, then we can help you.
Talk to us today to find out how we can help your business thrive during a crisis!