Know the value of your business

What is my business worth?

Your business may be your most valuable asset, so it’s important to have a proper understanding of its value. When you know what your business is worth, you have a more realistic perspective from which to plan for the future direction of the business, as well as the future income needs of you and your family. Once you know the value, you can put in place more effective strategies for future business growth, succession planning, retirement planning, and estate planning.

There are different ways to value a business and the purpose of the valuation will dictate the method that is most appropriate. Valuations are often based on the key financials of the business, the industry in which the business operates, comparable sales of other businesses, and the operational performance of the business. Collectively, these factors determine a business’s “enterprise value.” Furthermore, valuation methods used by credentialled appraisers typically fall into three categories: asset, market, and earnings.

Intangible assets account for as much as 80% of a business’s value¹. These intangibles are known as the “Four Capitals”: Human capital: the caliber of your management team and employee talent; Customer capital: the loyalty of your customers and their likelihood to deliver recurring revenue and referrals; Social capital: your brand recognition and reputation in your community; and Structural capital: the written documentation of what makes your business unique, such as patents, trademarks, policies and procedures, and standard work.

For general business planning purposes, a valuation conducted by a CPA or financial professional may be sufficient. If a certified valuation is needed, be sure that any firm or individual you hire has the proper credentials, such as: Certified Valuation Analyst (CVA), Accredited Valuation Analysis (AVA), Accredited Senior Appraiser (ASA), or Accredited in Business Valuation (ABV).