As an entrepreneur, you might wonder when it is the right time to get a business valuation. While business owners get a business valuation performed for a variety of reasons, here are 5 common reasons to get a business valuation report:

1. Thinking about selling your business. Contemplating the potential sale of your company is by far the most common reason business owners decide to get a business valuation done. Selling a business is very different from selling a house. It is usually not too difficult to determine the value of a house. To determine the value of your house, the real estate agent usually pulls up comparable properties that have been sold in your neighborhood recently, and your house will likely sell for what the comparable properties have sold for. On the other hand, finding comparable sales for privately held businesses can be extremely challenging. Since privately held companies are not required to disclose their financials to the public, we have no idea how comparable businesses are doing financially, whether they have been sold recently, and if they did, what the sale price was. Valuing a business is much more involved than valuing a house, and should not be undertaken lightly. Getting a professional business valuation report can be invaluable when you are considering the potential sale of your business.
2. Going through a divorce or partnership breakup.As unpleasant as it is to go through a divorce or partnership breakup, the attorneys will likely advise their clients to get an independent third party to perform a business valuation. Sometimes, the divorce or partnership breakup will result in the business being sold and the parties dividing the proceeds. Other times, one party might wish to keep the business and needs to buy out the other party’s ownership interests. Having a business valuation report will assist the parties in the negotiation process.
3. Estate planning and succession planning. Many business owners reaching the age of retirement start to think about how they want to pass on the business. Should they keep the business within the family? Should they sell the business to the current management team? Or should they sell the ownership interests to an outside party? In estate planning, business owners will invariably face the question: How much is my business worth, andwho do I want to pass it to? Not every heir is capable of running the business. If the decision is to sell the company and pass on the proceeds, it becomes even more important to obtain a business valuation report so one can properly plan for an exit strategy.
4. Tax planning and asset protection planning. As your business grows, it is important to work with a tax strategist and asset protection attorney to minimize your tax obligations and potential legal liability. Being taxed as a sole proprietorship or disregarded entity might make sense for a startup business, but the tax advisor might suggest switching to being taxed as an S-Corporation as the business grows. If the business owns real estate or valuable intellectual property, the tax advisor and asset protection attorney might suggest setting up separate entities to hold the real estate and intellectual property. Creating a comprehensive tax strategy and asset protection strategy is crucial if you want to build long-term wealth, and obtaining a business valuation report is often part of the planning process.
5. Receiving an offer to buy your business. While this is not an everyday occurrence, business owners can sometimes receive offers, whether solicited or unsolicited, to buy their business. If you come across someone who expresses interest in buying your business, it is probably a good idea to get a business valuation report so you know how much your business is worth. Not knowing the fair market value of your business could potentially cost you hundreds of thousands, or even millions of dollars.

It is never too early to get a business valuation performed. Even if you are not ready to sell your business now, knowing the current value of your business will help you establish a baseline and put the proper plans in place to reach your goals.

Advantage Business Valuations provides business valuation services for small to mid-sized business owners in the United States. Founded by Aaron Muller who has valued thousands of companies as a business broker, Advantage Business Valuations helps small to mid-sized business owners determine the value of their business with ease and confidence. To discover the value of your business, visit www.AdvantageBusinessValuations.com.