Do you Know How Much your Business is Worth? Here's Why you Should

Internal perspective: Team

In larger companies, professional managers are hired to guide the company. They have to act in the interest of the owners of the company, which is increasing the share price. In smaller realities, the same goal applies. The only difference is that in most cases, the managers – the entrepreneurs, are also the largest shareholders. Therefore, to increase the value of your shares, you must first know what those shares are worth.

Make more informed decisions

The first and most important reason for knowing how much your company is worth is for decision-making. Knowing the value of your business helps you optimizing your decision-making and reduces the uncertainty of the outcomes of these decisions. It enables you to ask yourself questions like, should I sell the company? Should I retire and hire management that is more suited to pursue this strategy? All these questions can be answered in a better way by knowing that single piece of information.

Set the right goals for your employees

Even small teams have coordination and communication problems. In order for teams to work dynamically and in sync, the goals of the company must be understood, shared and measured properly. If increasing the value of the company is the management’s goal, which it probably will be, there should be clear objectives for each department. But before you can increase your company’s value, you first have to know its value. An overview of your company’s financials, in the form of a valuation report, provides not only the value of the company, but reveals the drivers behind the numbers and the most important actions that should be taken for better results and faster company growth. It enables you to set clear objectives for each department, give your employees precise directions and measure results easier.

External perspective: Stakeholders

External shareholders, investors, and in general every participant in the equity of the company that is not involved in day-to-day operations would like to receive updates on the value of the company’s shares, which is of course a percentage of the total value. Keeping alive an informational funnel on this topic will cause less surprise in case of bad news and allow everybody to make better decisions.

Keep shareholders informed

Investors can have what we call liquidity preferences. This means that they might need to sell the participation to finance a new business, to get a new house or for any personal reason imaginable. Being updated on the company value will allow them to make the best decisions for their own lives, making them more aware of their financial situation and more content with the management of the company.

Give lenders good information

Not only equity participants want to stay informed, debtors require this information as well. More and more often, classic providers of debt for companies (banks) are asking for updates on company valuation. Indeed, on top of being a health check, the value is also considered as collateral by an increasing number of financial institutions. This means that the bank knows that by selling their stake in the company they will get back their initial investment, which lowers their risk and in consequence lowers the interest rate applied.

There are far more reasons for knowing the value of your company, even in its earliest stages, which we will lay out in later posts. For now, the reasons above should be a strong enough impetus to get a quick scan of your company value so that you and your team have the right information for decision making and communicating with external parties.

Start today by keeping track of how your value is evolving, click here to get your valuation computed!