Getting the Most Out of Your Business Valuation

Posted by: Brookside Admin

All business owners want to increase the value of their business over time. Many misunderstand the most effective ways of doing so, however. Whether you're planning to sell or merge your business or just want to increase its worth for yourself, understanding first how a business is valued helps you make intelligent decisions on maximizing that value. Here are a few valuable tips for maximizing the value of your small business. 

  • Identifiable cash flow

A common accounting practice for small business is to show a minimal income in order to shrink the amount of taxes owed. While this can be a way to save money in the short-term, it's also a great way to sell yourself and your business short in the long term. Banks, investors and those who may be looking to acquire your business will all use past tax returns as part of their decision. If your business consistently shows little to no income, the value of your business is significantly decreased. Typically, you stand to make much more on the sale of your business by showing a strong bottom line than you would pay in taxes because of it. 

  • New technology

Many business owners feel overwhelmed by trying to keep up with all of the new, emerging tools available to them. But, failing to take advantage of new technology not only puts you behind competitors, but also hurts the value of your business when you're ready to sell. This includes all potentially helpful technology like social media, websites, cloud computing and upgraded servers. Not only are businesses that fail to keep up with technology typically worth less than their counterparts, but they may prove to be difficult to sell at all. 

  • Updated business plan

In the past, you may be able to get away with a 5 to 10 years business plan. Now, a business plan needs to be updated much more often than that. An old business plan fails to reflect recent changes in technology, staff, competition and demand. In the event of a valuation, that reflects a lack of understanding of your marketplace and hurts your value. If you're planning a big transaction, you probably need to update your business plan so that it reflects both the current state of your industry and forecasts the foreseeable future. 

  • Full disclosure

Think you can hide some of the less appealing features or history of your company in the event of an acquisition or business loan? Think again. Everything will be disclosed eventually and trying to hide specific areas only means you failed to improve and plan for them. Before a major transaction, address these areas of concern and create a plan for them. Be realistic and develop an understanding about how the warts will affect your valuation. 

At Brown Kinion and Company, we offer a variety of services for business interested in taking stock of their current state. From business valuations, to assurance audits, to assistance in the sale of your company, we provide expertise and guidance. 

Call our office in Broken Arrow or Tulsa / Bixby to learn more and to get started.