A vast number of businesses have never had a valuation of their company.  The American Society of Appraisers (ASA) says this can lead to trouble.  ASA Senior Accredited Appraiser Bruce Bingham advises that every CEO or business owner have a current valuation in their desk drawers at all times in order to make informed decisions. ASA recommends that executives learn about the ins and outs of business valuations. See http://www.appraisers.org/consumer for more information.

"Many business owners think they have an idea of what their company is worth, but they regularly under or over estimate when guessing its value," says Bruce Bingham, ASA business valuation expert. "The only way to be properly prepared to merge or sell your company or to plan strategically for its growth is to have an updated business valuation."

The following are reasons why every CEO or business owner should consider having a business valuation conducted, per ASA (my comments in italics).

    * Know what your company is worth.  Sentiment often gets in the way of good judgment.  For a fair and independent opinion, obtain a professional business valuation, which when completed by properly accredited valuators, can also be used in legal proceedings, tax challenges, etc.  If a CEO is at a decision point regarding expansion, a large capital expenditure, and the like, it is probably helpful to have a ballpark idea of what the company is worth.  But do CEOs need a formal evaluation to get a ballpark idea of a company’s worth?  On the other hand, don’t most CEOs consistently overvalue the company?

    * Understand where your company fits in the landscape.  A business valuation will place your company in the competitive landscape of your specialized market.  It will also describe the market price and performance characteristics of publicly traded companies that are engaged in your line of business.  Don’t CEOs have a basic notion of where the company fits in the competitive landscape?  If they don’t will reading a valuation report really inform them of something this fundamental? 

    * Learn the financial condition of your company.  Dig deep to understand the complete financial picture.  A review and analysis including intangible assets can point out areas for more effective operations and more cost effective financing options.   If CEOs have to rely on an outside valuation to get a sense of the company’s financial condition, management is not doing its job.  But if the CEO is surrounded by ‘yes-men’ the perspective of a outsider can be crucial.

    * Make fast decisions on buying, selling, and mergers.  If you are faced with the option to buy, sell, or attract capital for your business, you may not have time to wait to have a business valuation completed.  Having a current valuation will enable you to strike while the iron is hot.  Right now, there are few fast decisions on buying and selling middle market companies.  The deal time is well over a year, and may take two years.  That leaves plenty of time to get a valuation.  On the other hand, most companies wait for too long to start the sales process.  An independent valuation may motivate owners to start the process.  This will lead to a much higher chance of a successful sales effort.

So CEOs are still likely to wait until the company is for sale, before incurring the cost of a professional valuation.  But there are several reasons to consider getting one now.

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