We can’t say it enough: As a business owner, you should run your business as if you will own it forever, but at the same time ALWAYS be prepared for selling your company when opportunity or circumstances pop up.
We repeat this statement so often because lack of preparedness is the single biggest derailer of strategic growth and end-game plans, including exiting with the reward you deserve. What we don’t talk about enough, though, is one of the most crucial steps in the exit planning process—a step far too many business owners neglect to take early or often enough.
Obtaining a professional business valuation.
A professional business valuation opens the door to smarter growth decision-making and planning, increases your leverage in negotiations, maximizes your financial return and more.
Here’s why having an investment banking firm conduct a formal business valuation is so vital to your company’s growth strategy and to your personal exit strategy.
Why Business Valuation Matters in Exit Planning
Determining Your Company’s Worth
While you likely have a general idea of your company’s financial health and worth, a professional business valuation provides you with a data-informed analysis that’s essential for charting the path to your exit.
Most importantly, a formal valuation prevents you from undervaluing or overestimating the value your business.
It results in a backable and fair price.
Increased Buyer (and Seller) Confidence
Prospective buyers perform their own due diligence before making an offer. However, presenting buyers with a professional valuation conducted in advance creates additional transparency, boosting buyer confidence and leading to smoother negotiations.
It also allows you, the seller, to enter the buyer’s due diligence phase with additional confidence. After all, you’ll already know what their process will reveal about your company.
Understanding of Value Drivers and Weaknesses
A professional valuation showcases the primary value drivers of your business — all the factors that increase the appeal of your company to prospective buyers.
Value drivers include both tangible and intangible aspects of your business and operations. For example, recurring revenue streams, strong customer relationships, intellectual and other capital and proprietary technology are all value drivers.
A valuation will also uncover your company’s weaknesses — and this is where having an investment banking firm perform a formal business valuation far in advance of your exit pays back tenfold.
By assessing your company’s weaknesses early on, you’ll have the time required to properly address them and therefore ensure your business attracts a higher price.
If you consider how long it takes to implement even small organizational changes, you’ll recognize even more fully why being able to start course correcting well in advance matters.
Achievable Exit Goals
The sale of your business is not your end-game. Your end-game is living the life you envision post-sale.
A professional valuation gives you a realistic expectation of what you can achieve.
With this knowledge, you can adjust your financial strategy and if necessary, your timeline, accordingly.
Why Involve an Investment Banking Firm in Your Business Valuation
There are various methods for determining the value of a company, but working with an investment banking firm has serious advantages.
Accurate Market Intelligence: Investment banking firms have access to real-time market conditions, sector-specific insights and other data. Their sources of information are what ensures your valuation will be comprehensive, accurate and relevant.
M&A Experience and Expertise: Investment banking firms specialize in positioning businesses for sale, identifying ideal buyers, structuring deals, navigating negotiations and closing sales. Your investment banker has the experience and expertise to guide you through every step you need to take, from developing your exit strategy through actually exiting on favorable terms.
Existing Relationships with Strategic and Financial Buyers: Investment bankers also have access to high-value buyers and proprietary deal flow. In other words, they already know those who may be willing to pay a premium for your company.
When to Perform a Business Valuation
Business owners should have a valuation performed at least five years before their planned exit. As stated previously, this gives you time to make needed changes that can increase the value of your company.
However, there are other times and events for which a professional valuation is invaluable.
During Annual Strategic Planning
Because annual planning is all about making growth strategic decisions that will ultimately determine the future value of your company, these should always be guided by a comprehensive analysis of where your business currently stands.
Upon Receiving an Unsolicited Offer
Having an up-to-date valuation makes it easy to assess whether an offer to buy your business is fair. If it is, the investment banker who performed your business valuation can help you decide if selling at that time makes sense or not.
Before Making Major Business Changes
Understanding your company’s financial position, along with its future growth opportunities and any potential risks is vital before undergoing restructuring, considering a merger or starting the process of securing growth capital from investors.
The Bottom Line on Business Valuations
A professional business valuation is a strategic tool for making data-driven growth decisions, strengthening your company and being fully prepared to meet your exit timeline.
If you’d like to discuss business valuations specific to your personal goals and those you’ve set for your company, let’s talk.
We view this type of conversation as an investment on our part, and we’d be more than happy to discuss your business and future plans in-depth.
