When Is the Right Time to Get a Business Valuation?

Understanding your company’s true value is the foundation of every major business decision you’ll make. But when exactly should you invest in a professional business valuation? The timing can make all the difference in maximizing your business’s potential.

It’s Never Too Early

According to business valuation expert Hank Boone, there’s “never a wrong time” to get a business valuation. However, certain situations make it absolutely critical. “When succession planning or an exit event enters a business owner’s mind, that’s when it should be done,” explains CJG partner Steve Burns, emphasizing that timing is crucial for strategic planning.

The reality is that many business owners wait until they’re actively considering a sale, but this approach can be costly. Hank recommends knowing your business value within 3-5 years before selling: “You need to know where you are so you can figure out where you want to be in the future.”

Beyond Exit Planning: Multiple Purposes for Business Valuations

Business valuations serve purposes far beyond preparing for a sale. They’re essential for insurance and estate planning purposes, providing the documentation needed for these critical financial decisions.

Perhaps most importantly, a valuation creates a baseline for improvement. Hank explains, “It’s a way to identify weaknesses within your business and strengths.” Steve adds, “It’s a way to create a baseline, and provides info on where the business is. It gives the owner the opportunity to see what needs to happen to get to the next step.”

CJG partner Ken Orth points out a crucial insight: “Just because someone’s increasing their revenue doesn’t mean they’re necessarily increasing the value of their business. So you could just be creating more work for yourself and not actually getting what you want out of it.” Once you understand your company’s value, you can determine how to enhance it beyond simply increasing sales.

When That Unexpected Offer Arrives

One of the most compelling reasons to have a current valuation is preparedness for unexpected opportunities. “When that unsolicited offer comes along and you don’t know your worth, you don’t know how to react to that offer,” Hank explains. Without knowing your baseline value, you might accept an offer that undervalues your business or reject a generous one.

How Often Should You Get a Business Valuation?

The frequency of valuations depends on your specific circumstances. For most businesses, it’s event-based rather than calendar-based. “If the business is humming along, I think doing one every year, while good, may not be necessary,” says Steve. “You do one to build the baseline, and then, if something significant happens within the business, then it causes a reason to do another one.”

However, there are exceptions. “If your business offers employee incentive plans tied to the business’s value, you may need a valuation more frequently,” Steve notes. In these cases, yearly valuations are typically necessary to measure value changes tied to employee compensation plans.

For businesses without specific triggering events, the general recommendation is to get a valuation every few years.

Whether you’re three years or 25 years from retirement, knowing your business value is crucial for informed strategic decision-making. A valuation is a roadmap for improvement and a foundation for major business decisions. Don’t wait until you’re ready to sell; start building that baseline today.

CJG is here to help. Reach out to us today to learn more about a valuation for your business.

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