What Is My Business Worth – Ask A Registered Business Valuer
What is my business worth is a question that suits a swathe of assets whose values are unknown because they do not trade in liquid markets.
Even liquid markets have their limitations. We value securities traded in liquid markets at the most recent trade for that security.
When the next trade occurs, it is likely that it will do so at a different price than the last trade. This is especially when markets are closed.
Or when there is a deluge of new information available that will affect the future price of the security.
Or worse if the market has seized because of a crisis like the global financial crisis.
These problems are trivial compared to valuing an asset for which there is not a liquid market. Real estate, infrastructure and small businesses often fall into this category of assets. There are others.
While a typical equity analyst may say something pithy like “your assets are only worth what someone else will pay for it!”. That is not very helpful if you need to make a decision that relates to its valuation when you don’t want to sell the asset.
Why Value An Illiquid Asset
There are many reasons to want to find the value of your illiquid asset.
- You may need to pay a tax based on its value.
- It may be subject to a matrimonial split where one party gets the asset, and the other gets money.
- In the case of a business, one partner may want to buy another partner out of the business.
- More regularly, a business owner may value their business regularly to see how it fits into an overall financial plan.
Small businesses owners are important beneficiaries of asking ‘what is my business worth’ without having to go to market.
For many small business owners, their business represents their superannuation. It is the last asset they will depend on to help fund their retirement.
It may also be the asset whose sale proceeds will help launch a new enterprise if it sells for enough.
A business valuation can play an important financial planning role in the owner’s future. It can trigger a decision to place the business on the market or to hold on to it.
It can be an instrument to help in the business’s management. A regular valuation of the business can show if the strategies being put into place over time are finding their way into creating a more valuable business.
Asking what is my business worth and getting a valuation report can help with benchmarking your business. It will help you find ways of raising its attractiveness and its value against competing businesses.
A business valuation is wrong in its assessment as soon as we complete it. But that is not the point.
Financial Statistics and Economic Statistics
A time series of estimates of the value of a business helps to see if the owner is tracking in the right direction.
It is like so much other economic data that we track. It helps us decide on important matters. There are many examples of this.
We track the general price level to estimate the level of price inflation that prevails.
We estimate the unemployment rate to see if the economy has slack or if we have reached full employment.
Many financial statistics, such as interest rates or exchange rates, are a matter of record. The Reserve Bank of Australia maintains records of this type of data.
Their ability to advise is being compromised by recommendations of a recent review. However, their data gathering function will remain intact.
Economic statistics such as GDP, investment, remittances overseas, production of crops and many, many, more are an estimate. The Australian Bureau of Statistics is the government agency mostly responsible for this data.
In my experience in business broking and valuing businesses, many business owners do not have a realistic estimate of the value of their business. They do not ask the simple question, what is my business worth?
Many times, the value they believe their business is worth is way off the mark. Usually, way over valued.
It can take quite a lot for a business owner to realise that they are mistaken in their valuation. It can also be quite a shock. They find out when they receive offers that are below expectations.
Even if it’s more than one offer, they often won’t believe it. They have not done their investigations.
The typical outcome for these sellers is capitulation. It can be a harrowing experience to have your plans come unstuck because the market did not meet your expectations.
A seller who doesn’t have a realistic valuation that is built up over time through a series of valuations can find themselves in a predicament. I have written about the best time to sell a business in another article on this site. An idea of what your business is worth is important in reaching a decision.
Business owners would do well to ask regularly, what is my business worth?
A Business Valuation Helps With Financial Planning
If they haven’t tested their business against market conditions, how can they know the correct time to sell? Arm yourself if you are planning on selling your business. Know what your business is worth, or it can get brutal.
Valuations allow a business owner to prepare the business for sale. It provides information that will slot correctly into their overall financial plan.
Alternatively, they risk leaving it all too late and facing a capitulation that requires their plans to be changed.
The ATO forces businesses to compile annual, and more frequent, accounts of the business.
An entrepreneur will regularly reassess the strategic levers of the business and adjust its direction where needed.
There are many stages at which a business owner will seek advice regarding the operation of their business.
Assessing its value regularly is also an important part of optimising a business’s performance.
There is a qualified profession that is suited to this task. They are a Registered Business Valuer certified by the Australian Institute of Business Brokers. They have access to market data and are familiar with current market conditions.
Registered Business Valuers can provide guidance in this critical area. Asking what is my business worth, regularly, provides a record of a business’ development. Knowing where you have been is an important part of knowing where you are going with your business.
Receiving this guidance regularly becomes easier. The Registered Business Valuer will augment the last valuation. By engaging them, you will align your knowledge of your business with its market fundamentals and not get blindsided when the time comes to exit.
If you would like a Registered Business Valuer to look at your business, you can contact the AIBB to search a list of valuers. Better yet, just call me.
