Having your business valued should be like the MOT you get on your car or the blood pressure check you have at your doctor’s surgery – an annual event that checks your business is in rude health and has, ultimately increased in value in its latest trading period.
However, relatively few business leaders choose to do this reasonably simple task. Whether doing it yourself, getting your accountant to do it or using a specialist company like Plimsoll, in these increasingly uncertain times, an annual business valuation should form part of your strategic planning each year.
The annual preparation and filing of your full years’ financial accounts is the ideal time to get a busines valued. It’s a mundane legal exercise, most often done by the accountant and a signed off as a procedural step. Why not take that mundane requirement and turn it into insightful, strategic exercise that adds value throughout the trading year?
Here are the reasons a business valuation is strategically important and should be performed annually:
Allows you to set an annual benchmark and adjust your strategy
Every business, in any industry or sector, carries out a period of reflection and strategic planning. Whether it is at the end of the calendar year or before year end, this stage of a company’s strategic planning requires a review of what has happened, what has worked, where there have been issues and, most importantly, what next.
An annual valuation is the ultimate measure of all these elements. It allows you to take a step back from the day to day of business and assess if the most recent year has added to the overall value of your business. Further, it allows you to develop the next steps to increase the value in the coming year and to ensure all elements of your business are contributing to that goal.
Finally, if you then measure your value and its trend against competitors and key rivals, you have the ultimate benchmark of your business. That is a potent tool to ensure your strategy is adding value and keeping you one step ahead of those companies you are competing against.
The first step in succession planning
Whether you plan to hand over the reins to the next generation, float the idea of a MBO to senior staff or eventually sell up to the highest bidder, an annual valuation should be the first step of any plans. It will allow you to plot your path to eventual succession with a strong idea of the value of your business and to demonstrate its long-term value potential to future owners.
Many companies put up for sale are “pumped and dumped”- the value of the busines is artificially inflated during the years before sale. During the due diligence process that is all too often exposed, which benefits nobody but the lawyers and other ‘charge by the hour’ advisers.
An annual valuation of your business allows transparency throughout your succession process, lets you set a reasonable ‘fair price range’, and eliminates surprises for all parties.
Placate shareholders and increase longevity
Throughout 2020 and, sadly, into 2021, shareholders of companies in many industries have taken a significant haircut on their investments. The coronavirus has ravaged some markets and significantly disrupted others. Nervousness among shareholders is naturally increasing and willingness to keep funding businesses is being tested.
In other industries that have boomed during the pandemic, shareholders are increasingly looking to ensure a requisite return on their investment.
Having an annual valuation allows the decision-making executive to demonstrate the likelihood of their business persisting once the crisis passes, and for shareholders to stick with the business. In booming industries, it is an easy measure that value is being added at requisite levels.
Easier dispute resolution
It is an unfortunate reality of business that many relationships that start out pulling towards a greater vision can sour further down the line. Under unprecedented pressure in 2020, tensions have been stretched at many companies in ways nobody could have envisaged just 12 months ago.
A breakdown in relations between key stakeholders in a business is a potentially costly hazard, However, it can be negated easily by having an annual valuation. If all stakeholders have an agreed overall value of the business, then the value of individual shares, should a partner want to liquidate their holding, become a mere function of maths, and makes the entire process more amicable.
To add some cheer to your week
All the other reasons provided here have others in mind: your shareholders, your fellow directors, those set to succeed you. But, what about you? Why not cheer up your year and see how much value has been added to your business each year?
Having worked through the pandemic and the complications Brexit has brought to business this year you’ve earned some cheer. Whether it is furloughing colleagues, laying off staff, hoping your supply chain will hold up, uncertain when key markets will reopen and so on, take a moment to step away from the day to day and see what your toils have achieved.
In calmer economic times, there is still every justification to assess whether what you have achieved year on year has added value to your business and your stake in it.
There are other more episodic reasons why Plimsoll produces valuations for businesses or the individual stakeholders within them. These range from divorce proceeding to tax purposes. We have even valued a business as a Christmas present from a wife to her husband.
Plimsoll provides the UK’s only 100% independent business valuation service. We are not involved in buying or selling companies. We have no hidden fees or agenda. We simply value businesses. All our valuations are based on financial data and requires no visits to premises. Our work is guaranteed to be completely objective.
All Plimsoll business valuations include a free comparison analysis on 10 other companies of your choice. You can choose the 10 companies to have valued alongside your own or we will choose them for you. If you are going to value your business, a comparison against your peers provides a sense of perspective. Who are you doing better than and who is outperforming you?
We are conscious of the sensitivity of a business valuation and the need for discretion. Our valuation process is completely confidential, and correspondence is kept purely between you and your dedicated valuations manager.
For more information about Plimsoll’s unique valuation service please visit https://www.plimsoll.co.uk/products/company-valuation-service