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Valuing your business is an important part of owning and creating a company. A business that is incorrectly valued can lead to problems later down the line and may jeopardise the sale of shares within the business. Here’s are reasons why it’s important that you value your business correctly, and what could happen if you don’t.
Why value your business?
If you are thinking, “should I sell my business“, valuing your business means that you’ll know exactly how much your company is worth should you decide to sell or split your business. You might as well know the correct value for your business, as others will value it anyway depending on what you might be looking for. For example, if you wish to borrow a bank loan, the bank will want to know exactly what your company is worth so that they can decide whether to provide you with the money and also how quickly you’ll be able to pay it pack.
By valuing your business, you will have a stronger understanding of your company assets and which ones are worth the most to your organisation. This will also help you to choose between what is worth insuring along with what to sell to make the most money quickly should your business face trouble.
Insurance companies will want to know the exact worth of your assets before they insure them so that they know what they will be covering and what type of insurance plan to offer you.
Knowing your company’s value can also be incredibly helpful when you are looking to sell your business for shares or in its entirety. By having your business valued and being presented with a concrete figure, you will be able to know which offers are deemed acceptable and which offers are simply too low. This way you won’t be losing out on money that you could have had through selling your business for a higher price that reflects its worth.
What can happen if my business isn’t valued correctly?
If you don’t know the correct value of your business, you could lose out on large amounts of money when you go to sell. Your business could be worth a lot more than you think it is and you might settle for an offer that is way below the range you should be accepting.
This also works the other way around. If you mark your company as too high on the market without having it valued, you might find it difficult for your company to get traction and interest from potential buyers.
Another issue could be that if your business is broken into and your assets have been stolen or damaged and you provide the insurance company with the wrong valuation, they might not be able to cover the losses and you’ll end up having to pay for them yourself.
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