Why The Need For Valuations

Why The Need For Valuations

You hear the hype regarding Business Valuations as a Tool for Business Improvement, but Why is it so important?

I am a veterinarian, business consultant, and a veterinary business owner.  I see my veterinary business from all sides.  I work there, I act as a business consultant to identify issues that may impact the business, and I treat that same business as a CEO.  Because I see the business from all sides I need ways to monitor success (or failures).  I have a toolbox of charts, graphs, financial statements, Key Performance Indicators (KPI), and my ultimate scorecard, the annual valuation.

So, you probably are wondering why I use the valuation as a business tool?  The answer lies in the volume of information it provides to me.  It substantiates a value for the business for a year’s hard work and determines the Net-Cash-Flow provided to the owner.  In other words, did all of the managing duties provide improvement in the bottom line of the business?  Doesn’t knowing the value of your business on an annual basis a good thing, especially for Financial Planning?  The answer is YES!  I know it is worth it!

Certainly every business owner considers getting a business valuation at the time he or she decides to sell the business, but every business needs to have an up-to-date business valuation on hand at all times. Here are some reasons a business valuation should be done at least once a year or at a minimum of every two years:

  • Something could happen to you (the business owner) and having a business valuation would help your family deal with the potential sale or dissolution of the business if you should die.
  • You may find an opportunity to sell or merge which needs to be decided quickly. Having an up to date business valuation allows you to take advantage of opportunities.
  • You may want to take on a new partner or LLC member, and you need to know the value of your business to determine the buy-in price.
  • You may be reaching retirement and you need to know the value of your business in order to construct an exit strategy well in advance of transitioning out of the business.  Your Financial Planner needs a valuation of this asset to better craft a plan for your retirement.
  • You may want to expand or build new facilities, and taking your business valuation to the bank will help them make the decision to lend money.  You may need it if you are planning on refinancing or recapitalizing the business.
  • You may need to separate from partners or shareholders, and you need to know the value to determine how to divide up the business.  How does you Buy/Sell agreements address this issue?  I would hope it requires an annual valuation instead of a set dollar amount or some formula based upon some strange or difficult to understand criteria.
  • You may be dealing with a divorce or other family issue, and you need to know the  value of the business as one piece in the discussion.
  • You may elect to use the valuation as a gauge of when it is time to plan on a sale of your business.

As you can see, valuations are a multi-purpose document.  They can assist you with planning strategies for the near future as well as for the long-range succession plans you desire.  Valuations can open your eyes to what is happening in your business and give you the confidence in knowing your greatest asset is doing as well as and hopefully better than your other investments.

Strategic Veterinary Consulting does offer a valuation service for your veterinary business.  Give Dr. Jim Guenther a call at 828-280-7200 and get your questions answered.

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