The business environment is very dynamic and is ever changing its course. This is the reason many businesses are formed but gradually are burnt out. Knowing the value of the company beforehand helps to have an idea as to which aspect of the business requires your immediate attention and which part is a lost cause. They can also assist in devising future strategies for the company.
There are several reasons why a businessman needs to perform the valuation of his business. Some of them are as follows:
1.To Find the Worth of a Company
This kind of information about your company would help you to understand the current scenario and take decisions accordingly. It will help you in saving both time and money by allowing you to comprehend where you need to put in more effort to develop your company and which part of the company is just a bad investment. This information will also better prepare you for the future of the business or when you when winding up a company.
2.To Settle Partnership Disputes
If the business which you were conducting was in partnership and the partner wants to exclude himself, there needs to be an independent business valuation is required. Also, if there is a new partner who wants to join you, the business needs to be evaluated.
3.For ESOP Plans
ESOP stands for Employee Stock Ownership Plan. In this, the company provides the employees with ownership of the company. The shares of ESOP are usually valued annually to measure the productivity of the company or establish a fair price for the stock.
4.Mergers and Acquisitions
During mergers and acquisitions, it is necessary to pre-value the company as this would help to gauge the worth better to be paid. A business valuation is an essential step if you are bringing in an investor in the company.
5.For Estate Planning
It is essential for you to understand and know the value of your business as it would allow you to plan for the inevitable taxes that are to come and fund the future tax liability of your estate.
6.Better Decision Making
The proper valuation of the business will help you to form an adequate baseline value for the business which would further help in increasing the profitability of the business. The formation and finalization of better financial goals and objectives will assist in the company restructuring which will allow you to focus on the development of the company.
7.Attracting New Investments
Business requires the constant support of new investors to stay in good financial health. A valuation would provide a clear understanding of the business and its overall health. Armed with this knowledge, an investor can decide if investing in a company would be profitable for them.
8.In Case of a Legal Action
No matter the type of the court case, be it a divorce, an injury case, etc., the damages should be based on the worth of the company instead of the estimated figures given by the lawyer. A proper business valuation will help you to strengthen your case and will not let any lawyer cheats you.
9.To Acquire More Funding / Loan
A valuation report for your business will help you a lot when you are negotiating with the banks, venture capitalists or any other prospective investors. A business valuation will increase your credibility with the banks and will help in speeding up the process of fundraising by providing a current and accurate value of the business.
These are some of the due to which a business may have to do its valuation. It can be established that business valuation is very beneficial to the company. However, it may take the form of a very tedious and complicated process. Therefore, it should be performed by a qualified valuation professional who has all the necessary credentials such as JAXA.
JAXA is a reputed business consultant based in UAE and comprises of highly qualified professionals that can deliver a range of services relating to auditing, business incorporation, financial planning, etc. We can help you to understand your business better and increase your profitability. For more details on the various services we provide do contact us – we’d be happy to help.