Few business owners relish spending money on something they don’t need. And for most owners, hiring an expert to estimate the value of their companies falls into that don’t-need category.
So it is no surprise that owners typically respond to an exit planning advisor’s recommendation to get an estimate of value for the company with some variation of: “Now? But I’m not planning to leave for years!” or “I built this company so I—better than any so- called expert—know what it is worth!”
Before you join these owners and scratch “Business Valuation” from your list, consider just five reasons you should put “Estimate of Value” at the top of your list. An estimate of value:
- Establishes your starting line and distance to the finish.
Tests your exit objectives.Reason 1: Establish your starting line and distance to the finish.Provides important tax information. Gives you a critical litmus test. Provides owners (and employees) an objective basis for incentive plans.
If you still are not sure that your list requires rearranging, rest assured that an estimate of value:
Is not the full-blown opinion of value that you will need just prior to your transfer of ownership;
- Costs about half as much as a standard opinion of value (because it lacks the supporting information contained in a standard opinion of value);
- Is the basis for the (later and) complete valuation; and
- Is used for planning purposes only. It cannot be relied upon for tax or other purposes.