If you own a business, the chances are to be your most valuable asset so far. So what’s worth it?
While you may have a sense of bowel, there is no replacement for a proper rating. “An appreciation provides a clear view of the true value of your business market,” says Nuri Benturk, a senior vice president of Banking Banking in RBC Assets Management – SH.BA
This information is needed for business owners to plan for the future of their company, whether it is building a success plan; Deciding whether or not to sell, transfer a business to a future generation or transfer ownership to the employee through an employee stock ownership plan (ESOP); or simply defining a growth strategy. However, a 2024 study of customers of the RBC Assets Business Owner found that 41 percent have never completed any assessment analysis.
A common refrain among business owners is that the evaluation process is very expensive, it takes time and complex. But getting an estimate can be easier than you think. Here’s what to expect.
What is business assessment?
Your accounting statements represent a naked value of your business-book value if you have sold each property, paid debts and gave up. However, this is rarely the full picture, and there are other determinants of the value of a company for a potential buyer not found in the balance sheet.
“For example, imagine that a great competitor is eager to expand in your geographical area,” Benturk says. “They may be willing to pay a premium that is not being caught in your book value.”
An assessment considers the tangible and inviolable aspects of a business, such as assets, liabilities, benefits, market position and future growth potential, to determine its overall value. Most estimates are carried out by a third party, such as a firm of property management, business broker, account or appraiser, to provide the owner with an objective assessment of their company’s performance and an assessment of what a buyer can pay in the current market and economic conditions.
“Sometimes the owners lose their attention as to what their business really is, so an appreciation can be an important control of reality,” Benturk says.
When a professional evaluates your business, they come with a number using different market -based and wealth -based approaches. The evaluator will choose the best method for your specific situation, taking into account factors such as the purpose of evaluation, the size of your company, the location and the industry.
The benefits of a business assessment
Knowledge is power, and knowing how worth your business allows you to make informed decisions in a number of situations, including:
Preparation to sell
Nearly 30 percent of the Customers of the Business Owner Surveyed RBC Property Management currently have plans to sell or transition their businesses – 70 percent of those in the next five years, according to the survey.
When thinking about their appearance, the evaluation was a major concern of the surveyed owners. This is because it is an essential step that helps create a more effective business transition plan.
Not only does an estimate give you an idea of what to expect from a sale, but it also helps you identify opportunities to optimize your business that can have a significant impact on the sale price – for example, reducing costs and by by upgrade your boundaries over the coming years.
It is important for your rating to finish early – before you start looking for buyers or discussing the business transition with family or business partners. This way you will have time to implement changes that can affect the value of your business, and you will be in a better position to negotiate if someone suddenly comes with an offer.
Making future investments
If you are thinking of investing even more to raise your business, an estimate may indicate the return of the money you have already spent. “Before contributing to another big round of savings or funding, wouldn’t it be good to know how things worked in the past?” Asks benturk.
Assessment and proof of the results of the past will support your issue for investors. It can also inform ways to spend additional capital that can generate more value.
Retirement and Planning of Assets
No matter how you spend your business, doing so there will be implications for both your future and that of your loved ones. Knowing your business value allows you to see how much you will have for retirement and what may be available to leave your heirs.
“Assets planning and business transition planning are integrally linked,” says Bill Ringham, Director of Private Asset Strategies in RBC Asset Management – Sh. Property Planning Advisor and Advocate throughout the process. “
For example, if your assessment shows that you are to be exposed to asset taxes, your advisers can work together to identify effective tax strategies that can potentially reduce tax crackdown on your heirs, such as donating shares of business for new family members.
They can also advise on other desires for your wealth, such as philanthropic donations, which can affect your success planning.
Negotiating with your business partners
For family businesses or companies with many owners, if one of your business partners decides to leave, you or another partner may decide to buy their share. The same is true if a partner passes and you use a purchase agreement with their heirs.
Recognizing business assessment helps determine the amount for these future purchases and allows you to have rational discussions with the best interests of all parties involved, without being realized by emotions, stress or emergency.
How to get a business appreciation
Some wealth administration firms offer informal estimates to their clients for free. In this case, you will need to provide your financial statements and business tax statements.
But if you are looking for an official rating that may make the basis of a purchase agreement or to help you prepare for a future sale, it can cost about $ 30,000 to $ 50,000, Benturk estimates. These estimates are profound, and the firm can partner with an experienced investment bank in your industry to research your rating. This process takes several weeks, and the sale can take several months, which is why it is wise that business owners start with head.
Remember, even an official assessment is still just an estimate. What you eventually get in exchange for your business will be what someone is willing to pay.
“Likes like real estate websites that give you an appreciation of what your home is worth – it’s a good starting point to know what to expect, but what you actually sell it depends on the market and offers you receive, ”explains Benturk.
But when the time comes to sell, you can be able to use it to your advantage by looking for multiple offers and creating an auction process. “We had a client where the original rating was $ 30 million, but after talking with over 300 potential buyers, we finished closing for about $ 60 million,” he says.
Whether you are preparing to sell or just want to improve your business strategic planning, working with your financial advisor to understanding your assessment is essential to navigate the future with confidence.
Neither the RBC wealth management, a division of RBC Capital Markets, LLC, nor its associates offer legal, accounting or tax tips. All legal, accounting or tax decisions regarding your accounts and any transaction or investment related to such accounts must be made in consultation with your independent advisers. No information, including not limited to written materials, provided by RBC WM should be interpreted as legal advice, accounting or tax.
RBC Asset Management, A Division of RBC Capital Markets, LLC, Registered Investment Advisor and NYSE/Finra/Sipc member.