Business valuation - Why and when should I do it?

As a founder or leader of a digital/ technology business, at different stages of the business life cycle, you will reach a point where you will have to consider quantifying its value. If I ask you now, how much is your business worth? You may have an aspiring value in your mind, but typically, you would not know how realistic this is. To get to a more accurate and reliable figure, you will need a business valuation.  

Business valuation is the process of determining the worth of your business. This may sound rather straight forward, however, there is a lot more involved than simply playing with some financial numbers. It is as much of an art as it is a science. Along with the financial number-crunching skills, this requires knowledge and understanding of the business and its market to determine a credible valuation, aka ‘Fair Market Value’. Ultimately, 

“The true value of your business is the price that a buyer is willing to pay for it” 

In reality, for many digital and tech entrepreneurs and business leaders, the whole process of business valuation remains a black box. Recognising that, we’ve written a series of blogs on business valuation. These blogs cover many questions that you may have including how to value my business, what is involved in business valuation and when should I value my business?  

Business Valuation – What is involved?
In short, the core elements that need to be taken into account when planning to undertake business valuation are: 

  1. Conducting a financial analysis 

  1. Normalising financial statements 

  1. Choosing valuation approaches 

  1. Factoring in the cultural due diligence  

  1. Factoring in the operational performance review 

The key is to have your house in order, financially, commercially and operationally before embarking on this journey. We have discussed these 5 core elements in detail in our blog on “What’s involved in a business valuation?” 

Why should I value my business?
Another question often asked is “what’s the need?” Or “what are the drivers for me to consider undertaking the valuation of my business?” We discuss the various factors in detail in our blog on “Why and when should I value my business?” The three main reasons for digital/ tech SMEs are: 

  1. Planning the next phase of evolution of your business 

  1. Preparing for Merger & Acquisition (M&A) 

  1. Raising capital for business growth  

When to start preparing for a business valuation?
In our experience, it is best to start preparing for a business valuation early. We recommend that digital/ technology companies start preparing their business 18-24 months ahead of a planned or scheduled valuation, because: 

  1. This gives you the time and opportunity to take corrective measures to improve business performance and align your financial reporting with the requirements for valuation 

  1. You can optimise and improve the levers of business value creation that can help maximise the value of your business. 

Get in touch with our team of business growth consultants to help you understand what is involved in business valuation and how to better prepare for it so that you can get the maximum value for your business.  

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