The Benefits of Small Business Valuation
It is projected that more than 80% of small enterprises have as no financial approximation as to what their company is worth, nor do business owners appear to care. This is like me asking you how much money you might have in the bank and you have got no clue what I'm asking. You would not run your personal financial life in this manner; so why would you operate your business with no understanding of the value?
The personal wealth of each and every small business owner is directly related to the valuation of their company. If you expect to be worth a million dollars, then you better have a business with a valuation of one million dollars. That is critical because at some point every small business owner must retire and your pension is dependent on the worth of your business. Consider the fact that 70% of privately owned companies in the USA will be put up for sale by 2030 and according to the National Federation of Independent Business, only 30% of businesses that are put up for sale are sold. This is because many small enterprises never pay attention to the valuation of these businesses.
Where does valuation come from? Valuation gets assigned based on the benefit stream of your business. The most obvious advantage stream is Earnings Before Interest Fees Depreciation and Amortization or EBITDA in short. When you go to sell your business and retire from of your company, you will sell your business for a multiple of your EBITDA. The larger the firm, the larger, the higher the evaluation and the multiple. The key is to get the multiple up which will increase your valuation. This demands an aggressive growth strategy linked to the valuation of your business.
The good news is that financial professionals are now providing cloud-based solutions that empower any small business proprietor with a roadmap for increasing value. The bad news is this roadmap may take five years or more to execute. Also, most road maps require a great professional team from keystone business advisors to ease the process. Small companies should consider one of two options:
Value Opportunity Profile which is a comprehensive evaluation of your business based on interviews with your management team. Specific recommendations are made on how best to enhance the value in three phase.
Value Builder System is a twelve-month program which starts with your personal self-appraisal, allowing you to decide if you want to embark on the program or not. Exercises are employed to improve the value rating of your organization.
No matter how you get there, it is imperative for each and every small business owner to recognize how important valuation will be to their personal wealth. Check out http://www.ehow.com/how_2154040_value-business.html to learn more about business valuation.