Yesterday was the right time to have an independent business valuation for your company by an independent business valuer. And tomorrow will be late. The need for a business valuation arises for several reasons: incoming investors, financial strategy, business planning, business sale, founder exit, public offering, or net worth certification.
There are number of events that should push you to get a business valuation so that an entrepreneur can make smart decisions.
Raising money is a cumbersome multi-stage process while establishing a valuation is one of the most important steps along the way. Valuation matters to entrepreneurs as it determines the dilution in the company in exchange for fund raise.
As an entrepreneur, if you are considering selling your venture to a third party, a valuation that is prepared before the beginning of the negotiation will put you in a position of power. When you have a good idea of the value of a business, you can avoid wasting time looking at deals that do not make financial sense.
Having a buy-sell agreement in place between multiple owners ensures a smooth transition of a business in events such as death or disputes among the owners. Entrepreneur needs to understand the value of the business to determine the dilution of equity shares.
If the company is considering establishing an Employee Stock Option Place (“ESOP”), a feasibility study is needed and a key part of that study is the valuation of the business to determine the practical issues of establishing an ESOP.
The business valuations need to follow set time frames. However, it’s always important for an entrepreneur to know the value of their business. For example, while planning fund raise, entrepreneurs should start thinking about their fund raise plan at least one year before implementing it. Also, a pre-money valuation is most likely supporting the planning agenda for the entrepreneur and start-up. In general, it’s a good to have a business valuation done every year, since your business interest is most likely your most valuable asset.