Why is Knowing the Value of Your Business So Important?

Determining your business’ value is crucial for planning. However, many business owners are unaware of what that value is. According to a survey of business owners, 98% of businesses polled didn’t know the value of their companies.¹ 

Consider these key points:

• Planning Ahead - Knowing your business’ value helps you make informed decisions.
• Fair Compensation - A fair price for your business ensures that your hard work is appropriately rewarded.
• Conflict Resolution - Clear valuation prevents disputes among family members and stakeholders.

Formal valuations can be time consuming, expensive, and may cost as much as $10,000 or more depending on the business. Some common valuation methods include:

• Book Value - Net worth based on assets and liabilities.
• Adjusted Book Value - Considers market values.
• Earnings Before Interest Taxes Depreciation & Amortization (EBITDA) - Evaluates profitability.
• Sales Multiplier - Compares revenue to value. 
• Asset-Based Valuation - Includes tangible and intangible assets. 
• Market Comparisons - Compare to similar businesses. 

It’s essential to choose a method that is tailored to your business. Reach out to your Federated marketing representative for more information about our Value Estimator^SM, which can provide you with an informal value for your advisors for business succession or estate planning discussions.

^{1 CNBC. Most Small Business Owners Don’t Do The Math On Their Most Valuable Asset. July 17, 2022. Accessed March 21, 2024}
 

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This article is for general information and risk prevention only and should not be considered another other offer of insurance or legal, financial, tax, or other expert advice. The recommendations herein may help reduce, but are not guaranteed to eliminate, any or all losses. The information herein may be subject to, and is not a substitute for, any laws or regulations that may apply. This information is current as of its publication date and is subject to change. Some of the services referenced herein are provided by third parties wholly independent of Federated. Federated provides access to these services with the understanding that neither Federated nor its employees provide legal or other expert advice. All products and services not available in all states. Qualified counsel should be sought with questions specific to your circumstances. All rights reserved.