Understanding the importance of company valuation should be seen as key to the ultimate success of any business owner or investor. 

Your valuation, conducted by an expert independent professional, will provide a clear and comprehensive overview of your firm’s value. However, it goes beyond merely data on a page. A business valuation will provide you with highly valuable insights into the past, present, and future of your business, its success, its failures, and more. 

At Inquesta Forensic Accounting, we understand the key impact business valuation can have, for a wide variety of different reasons. In this blog we delve into the primary reasons behind the importance of company valuation, touch upon valuation as a concept, and much more.

Understanding Business Valuation

A business valuation is an appraisal of the overall worth of a company, primarily done by an independent expert. The valuation will come in a number of different forms, looking at your company’s assets, earnings and profitability; sale value of other businesses in your industry, and the ability to generate future earnings. 

You should not see business valuation as simple data, a number for you to go away and cite to investors, it is an asset that provides great insight into the success, both past, present, and even future, of your company. 

You can use a business valuation for a number of different purposes to help you achieve your goals, whatever they might be.

For more information about the different business valuation methods, view our dedicated blog.

Why Business Valuation is Important

The importance of a company valuation cannot be understated, it can be a vital tool in resolving long-standing disputes (between shareholders, partners, etc.), it allows you to make more informed business decisions, aid investment decisions, better plan for your exit, and much more. 

Why business valuation is important is tied to the key role it can play across the different aspects of the business. Company valuation is a fundamental aspect in modern business, it should be utilised as a prominent tool in the day-to-day decision-making process. It should provide vital insight into the firm. 

Primary reasons why business valuation is important include: 

Make More Informed Business Decisions 

Regardless of whether you’re planning on expanding your business, selling up, taking over another existing company, or raising additional capital, an up-to-date and accurate business valuation will provide you with highly useful information on the state of your operation, information which can then be used to help you make much more informed business decisions. 

If you’re operating a company, you should never do anything without knowing exactly what to expect. A business valuation can help owners, investors, and stakeholders truly understand the worth of the business, as well as its assets, and have a more well-rounded view of it. 

With this information, they can go away and plan for their future, as well as the future of the company. 

Help With Potential Mergers & Acquisitions 

If you’re embroiled in an ongoing merger or acquisition transaction, it’s of the utmost importance that both sides of the deal, the buyers and the sellers, know the fair value of the asset involved. 

A company valuation ensures that all parties involved are on an even playing field, no one side has any advantages over another. With this even footing, both sides will be able to negotiate to ensure that a deal can be done on both fair and realistic terms, based on actual concrete evidence.

Without an up-to-date valuation, it can be very easy for either an overpayment or undervaluation, resulting in one party getting a poor deal. To maximise fairness in the process, you should prioritise a timely company valuation. 

Estimate Return on Investment 

If you’re a prospective investor looking into a business, weighing up whether they are a worthwhile investment, use a business valuation to make this process significantly easier, and in turn significantly more accurate. 

Regardless of if you’re a solo investor or part of a private equity firm, an accurate valuation will ensure you have the best possible chance for a return on investment.  

Assess Company Performance 

Business valuation helps you to assess your company’s performance by providing you with a clear measure of what it is worth. In turn, a valuation offers key insights into various different aspects of a number of elements of the company, including: 

  • Financial health 
  • Operational efficiencies 
  • Areas of inefficiencies 
  • Profitability 
  • Growth prospects 

Resolve Disputes

During ongoing legal proceedings such as a partnership/shareholder dispute or a divorce/matrimonial dispute, business valuation is necessary in order to help determine the fairest possible settlement. 

No matter where your dispute stems from, an accurate valuation will help. This is because, in a dispute such as those listed above, both sides will be attempting to manoeuvre to get the best possible deal/settlement for themselves. The importance of company valuation in a dispute is in ensuring that fair decisions can be made for all involved and nobody is taken advantage of. 

Better Exit Planning 

Business valuation is a critical component in exit planning. It provides owners with key information and insights that can in turn allow them to prepare for as successful and profitable exit from the company as possible. 

It allows the owner with the information to better time their exit, choose the most optimal exit strategy, set the best price if they are looking to sell, plan for the smoothest transition period possible, and more.

Plan For The Future With Accurate Business Valuation 

The importance of company valuation can never be overstated. It should be seen as a foundation by which informed business decisions are made, for company owners and investors alike. 

Additionally, the company valuation, if done to its maximum potential, should not be seen as a simple one-time exercise. It should instead be viewed as a regular and continuous process with the aim of helping you make the most informed and appropriate decisions possible at all times. 

Regardless of whether you’re looking to resolve a dispute, make better investment decisions, or estimate your return on an investment, the Inquesta team of Forensic Accountants are here to help you with an up-to-date and accurate valuation, to provide you with a foundation to build on going forwards. 

As experts in the field of forensic accountancy, we have a proven track record of delivering accurate and efficient business valuations that will help guide our clients towards achieving their goals. 

For more information about how our team can support your company valuation, get in touch today. Alternatively, consider downloading our guides to business valuation for shareholders disputes and divorce/matrimonial disputes.