Knowing the value of your company is one the most beneficial things you can know about it.  And yet, very few business owners know what their company,  which may be their most valuable asset and largest investment of both time and money, is really worth.

Most business owners do not give much thought to having their business valued by an appraiser or other objective third party.  They may be busy with personal and business activities and do not want to add another task to the list, they may not want to spend the money, or they just may not know the importance or benefits of obtaining a valuation. But, there are important reasons for obtaining an appraisal, :

• Selling the company:  Most owners do not give much thought to the value of the business until they are either approached by a potential buyer or decide it is time to find a buyer.  Owners should have a clear understanding of the value, and how that value was reached, before sitting down at the negotiating table.  Owners who do not know the value are at a marked disadvantage in the negotiating process.

• Raising capital:  An appraisal of your business can help your company attract investors and lenders as it can provide clarity on how their funds and investment will be used and what type of return they can expect.  The valuation may also ease any concerns they have about the business.

• Buy-sell agreements among owners:  Having an independent third party appraisal can eliminate or help resolve disputes between business partners under a buy-sell agreement.  Having realistic expectations can prevent prolonged, messy and expensive fights if an owner decides to leave the company or must leave to settle the disputes.  It can help the parties come to a fair agreement.

• Insurance needs:  Without knowing the value of your business, you cannot know how much insurance is needed to protect your investment from both a casualty and liability perspective.

• Estate and succession planning; divorce:  Knowing the value of the business can help in determining the value of gifts to family members and will be important for tax and estate planning.  In situations where the owner wants to bring others into the ownership ranks, knowing the value will be useful in determining any buy-in amounts as well as how much you are giving up.  In divorce situations, the appraisal that is obtained outside of the divorce proceeding may be considered the fairest since it was not performed by the parties’ advocates.

• Buy-sell agreements among owners:  Having an independent third party appraisal can eliminate or help resolve disputes between business partners under a buy-sell agreement.  Having realistic expectations can prevent prolonged, messy and expensive fights if an owner decides to leave the company or must leave to settle the disputes.  It can help the parties come to a fair agreement.

• Learning shortfalls in the business:  The appraisal process can reveal weak financial or accounting controls and other systematic problems.  Discovering those, and taking action to correct them, can help increase profitability and/or the marketability of the company when the time comes to sell.