5 Reasons Why You Need to Know How Much Your Business is Worth

Most people overvalue their business. But knowing the realistic worth of your business will not just help you to maintain your business, but it will help you to successfully run your business. Don’t guess at what your business is worth, and here’s why:

1. Your business is likely your largest asset and needs to be considered in your financial plan.  
A financial plan prepares you for all of life’s financial milestones, from retirement to sending your kids to college to emergencies. Since your business is your largest asset, your financial plan will mainly be funded by the state of your business. If you look at the people who are financially successful, they didn’t get there by accident. To get to where you want to go, you need to have a plan to get there. Taking stock of your assets will allow you to make a plan and, therefore, help you meet your financial goals.

2. To make the right business and corporate finance decisions. 
You can’t make the right decisions if you don’t know all of the facts. Knowing all of the facts means knowing how much your business is worth. When you know the accurate worth of your business, you can adjust decisions and timelines to make sure you’re on course for meeting your financial goals as defined by your financial plan.

3. To fund your buy-sell agreement.
A buy-sell agreement lays out the steps you’ll take when a triggering event takes place. However, that’s all it is. Simply stating an owner gets X amount of the business at the time of a triggering event is arbitrary. In order to back the terms of the agreement and ensure adequate funding is in place, a business owner needs to know how much their business is worth.

4. To ensure an accurate succession plan is in place.
Eventually, someone will need to take over your business. This can be done in a number of ways. One way could be someone buying you out. Another is awarding ownership as compensation (such as stock) to key leadership or employees. But before any of these things can be done, you first need to know how much your business is worth.

5. To ensure the right estate plan is in place for you.
A valuation can help you realize your estate planning goals in the most tax efficient manner. Your business is likely your largest asset and, consequently, a large part of your estate. If your business reaches a certain threshold where it causes your estate to become taxable, you could be subject to a federal estate tax rate as high as 40%. However, by knowing how much your business is worth, you can gift assets to family members, potentially decreasing the amount of taxable assets and lowering your tax burden.

business valuation­­—knowing the worth of your business—can ultimately improve how you manage your assets. It allows you to keep track of your goals, make informed decisions, and plan for the future.

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