Business Valuation: What is it? Does My Company Need It? 

July 10, 2024

If you’re a business owner, knowing how well or poorly your business is doing is vital to its survival. However, understanding the worth of your business does not start and end with looking at your company’s revenue or assets. There is much more that goes into it. Enter business valuation, a process that determines the present value of a company. 

The Significance of Business Valuation

Business valuation serves as the compass guiding crucial financial decisions. It provides stakeholders with a clear understanding of a company’s worth, enabling informed choices about investment, expansion, mergers, acquisitions, and succession planning. Moreover, it facilitates transparency in financial reporting, enhancing credibility with investors, lenders, and regulatory bodies.

What Exactly is Business Valuation?

A business valuation is the process of determining the value of a business. In other words, what is your company worth? During this process, a professional who is designated as Accredited in Business Valuation will analyze all areas of your business.

Does My Business Need It?

The short answer is yes. For business owners, understanding the value of their company is important. In fact, most private business owners do not know the value of their company. Certain circumstances and life events especially call for consulting an expert Accredited Business Valuation (ABV). While this isn’t something you would need to have done on a monthly or even yearly basis, there are several instances in which you would need a valuation done. 

Below are several possible reasons:

  1. To sell a company
  2. To purchase an already existing company
  3. Marital divorce between a jointly owned business 
  4. Contract agreement between a business owner and their investors 
  5. ESOP (Employee Stock Ownership Plans) 
  6. Converting from C-Corp to S-Corp 
  7. Gifting ownership to family, charity, or a trust as part of estate planning.
  8. Disputes between co-owners 
  9. Tax season 
Did You Know? 
Professional valuations provide more than just numbers. Many companies have intangible assets that may compose the majority of a business’ value.

How It’s Done

A valuation analysis by The Holliman Group provides the following:

  1. Establish the Purpose
  2. Estimate 10 year Operating Projection of Earnings with (AMP)*
  3. Define the Competitive Strategy
  4. Define the Advantages & AMP* as well as Disadvantages
  5. Review the Competitors
  6. Quantification of Business & AMP* as well as Financial Risk
  7. Identify Intangible Assets that Create Value
  8. Estimate Stages of Industry Evolution – Develop AMP*
  9. Recommend Steps to Increase Profit with AMP*

*Assessment Management Plan – manages an organization’s infrastructure and other assets to reach an agreed standard of service.

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Conclusion

At the Holliman Group, we believe every business owner deserves to know the value of their business. It is extremely important to establish the value of your company and to continually reassess that value. Don’t put yourself in a position to be short changed when buying, selling or making value decisions. Obtain a professional analysis and make sure you have an expert Accredited in Business Valuation. 

Whether you’re planning to sell, seeking investment, or strategizing for the future, we are here to assist you. Contact us today to schedule a consultation.

Fun Fact
The Holliman Group in Mobile, Alabama is one of only 28 firms in Alabama that is designated as Accredited in Business Valuation by the American Institute of Certified Public Accountants.

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