Question: Do I really need a small business valuation?
If you provide small business valuation services, then this is far and away the most common question you’ll hear, day in, day out. And the second most common question? It’s probably “why should I pay for small business valuation services, can’t I just find a business valuation calculator online and plug in my sales numbers?”
You could do that, but as is the case in my other areas of life, if someone is offering you something for free, chances are they’re just setting you up to sell you something. Only now you’ve provided an anonymous website with important financial information, which can hurt you in a number of unexpected ways.
Generally, if you don’t invest in professional small business valuation, then there are three ways to get a valuation for your company yourself:
- Compare your family business to similar companies that have recently been sold
- Calculate your company’s assets
- Compare earning power versus risk assessment
Of course, the number you arrive at will be a vague guesstimate at best. That’s because a company’s value can depend on a number of other factors, not all of which are easy variables to plug into an online business valuation calculator.
For instance, as of 2014, just 21% of Americans had confidence in their bank. Pre-recession, back in 1980, that number reached as high as 60%. While most Americans no longer trust their bank, Americans have an almost religious reverence for small and family businesses. If you run a trusted family business with incredible name recognition in your region, then your brand itself could be one of your most valuable assets. And that’s just one reason business valuation services are so important.
Many people who own a family business plan on either relying on their business during retirement or passing on their company to the next generation. But in order to plan for the future, you need to have an accurate idea of exactly how much your company is worth. To do that, there’s only one truly reliable option: business valuation experts with experience working with family businesses.
Without this crucial knowledge, you’ll be planning for the future on nothing more than a guesstimate or wishful thinking.