Understanding a company’s worth is one of the most important and often overlooked parts of running a successful business. Whether considering selling your business, raising capital, or planning for retirement, a business valuation gives critical insights to make informed decisions and build long-term value.
In this article, we explain why business valuation is important, when you should get a valuation, and how it fits into your broader business growth strategy.
What Is a Business Valuation?
A business valuation is the process of determining the economic value of a company. It considers assets, liabilities, income, market conditions, and more to calculate what the business is worth today. Beyond a number, a valuation is a powerful planning tool that can help owners improve operations, reduce risk, and prepare for the future.
Why Business Valuation Is Important
Even if you are not planning to sell the business anytime soon, knowing its value is essential. Here’s why:
- Plan for Growth and Exit: A valuation provides a clear starting point for any exit strategy or long-term planning. It helps identify ways to increase value before a sale or transfer of ownership.
- Support Investor and Lender Confidence: Whether raising capital or applying for a loan, a current valuation reassures stakeholders that the business is healthy and worth their investment
- Prepare for Unexpected Events: Life happens from sudden illness to market shifts. A business valuation ensures you and your partners are prepared with fair, documented numbers for buyouts, succession, or legal disputes.
- Enhance Succession and Estate Planning: If you are passing the business to family or heirs, a professional valuation minimizes tax liability and supports a smooth transition.
- Benchmark Performance: Regular valuations allow you to track progress and measure the impact of your decisions over time, a valuable metric for any small business owner focused on sustainable growth.
When Should You Get a Business Valuation?
Knowing when to get a business valued is just as important as why. Here are key times to consider a professional valuation:
- Before Selling Your Business: Planning to sell your business in the next 1–5 years? A valuation helps to price it properly and identify improvements that could increase value.
- During Partnership Changes: A valuation is critical during buy-sell agreement planning, partner exits, or adding shareholders.
- When Raising Capital: If you are seeking investors or bank financing, a valuation will be a deciding factor in the ability to secure funding.
- As Part of Annual Strategy: Many successful companies get a valuation annually or biannually as part of their strategic planning and performance review process.
What Goes Into a Business Valuation?
Valuation experts will evaluate a range of factors to determine the economic value of your business. This includes reviewing financial statements and earnings history, analyzing market trends and overall industry performance, and assessing both tangible and intangible assets. They will also consider your revenue model, cash flow projections, customer base, key contracts, recurring income, and any adjustments to the owner’s compensation. Depending on the purpose of the valuation, the advisor may apply one or more methods, such as the income-based, market-based, or asset-based approach, to arrive at a fair and well-supported value.
Why Work with a Business Valuation Advisor?
A certified business valuation is more credible, detailed, and defensible than a DIY estimate or online calculator. At First Midwest Advisors, we provide valuations tailored to your unique goals, whether it is selling your business, navigating succession, or simply planning for growth. We do not just give you a number. We give you insight, context, and a strategy to increase value over time.
Final Thoughts
If you have ever asked yourself how much your business is worth, when you should get a valuation, or whether it is necessary before selling your company, the answer is simple: yes, and the sooner, the better. A proactive business valuation not only helps you understand the true value of what you have built but also protects your legacy and opens the door to future opportunities.
Ready to Take the First Step?
Contact us today for a consultation!
Jason Sanders | Managing Partner
517 206 7464