In one of his many speeches, Warren Buffet was quoted when he said that business schools should focus more on teaching budding entrepreneurs about business valuation.
This simple statement emphasises the need to assess the real value of your business but it does not explain why valuation is indeed important for a successful company. Here are some points to consider to help you understand why valuation is important for your business:
1. Sales Prospects
Knowing the economic value of your business is vital when you are seriously considering the possibility of selling your business. These exit strategies demand that you know the accurate net worth of your business in order to calculate the best price that you should sell it for, interest included. Failing to undertake valuation initiatives for your business will put your potential wealth generation strategies at risk.
2. Business Planning
Mapping out your business plans requires you to maximise the use of all your available resources. Since the value of your business is a major focal point in the computation of your assets, you should exert serious efforts to include your company’s net worth in your business financial plans. You can only do that if you are thoroughly aware of the economic viability of your business.
3. Tax Compliance
The Australian Tax Office (ATO) reinforces strict rules to ensure compliance among Australian business owners. Since your company’s actual financial position is part of the ATO’s calculation for your tax bills, you are obliged to undergo business valuation to keep your books in order. In the long run, these will all make your tax compliance initiatives easier to address.
4. Resolving Shareholder Issues
Every now and then, business owners encounter disputes with their shareholders. One of the more effective ways to resolve such issues is to assess the actual financial position of your business through valuation. Business valuation will give you the proper perspective when it comes to the complicated process of resolving critical issues with shareholders.
5. Additional Funding
In many instances, valuation has helped many businesses to acquire additional working capital for their enterprise. By thoroughly assessing the actual net worth of your SME, it will be easier for you to seek additional funding from potential investors. A glimpse at the actual value of your business will spell the difference between an investors ‘yes’ or ‘no’.
Business valuation is important for your business in many ways. Admittedly though, knowing the accurate net worth of your SME involves a long and tedious process. The good news is, you can always seek help from experts to get your business valuation requirements out of the way.
Eager for more advice about your critical business numbers? Get in touch with our advisers at D&V Philippines for more information.